Can an IRS tax examination mean big trouble for trucking and transport businesses? What does the government want to see? Why did they pick your company?
It seems that every year, I represent at least one major trucking company in an IRS or state tax audit. I must admit, some of the harshest results can be handed to truckers. Want to know why?
What Are They Looking For?
Many audits begin alike. The IRS will send its pre-written notice, IRS Letter 2205, that letter will not identify any particular issue – just the company and year(s). The initial letter, and the opening meetings, allow the exam agent opportunity to:
- Ask questions about everything related to the business.
- Learn your business transactions.
- Identify the potential weaknesses in the tax returns.
So what are they looking for? Everything! More income. A reduction of expenses. Missed taxes on fuel. Missed employment dated on drivers. The government is looking for a way to increase your tax. Want to know how?
Methods Used to Increase Trucker’s Tax in Audit
Let’s all agree on something. The things we enjoy, we tend to do very well. If you run a trucking company, keeping your books is necessary, but it’s never fun. And so, generally speaking, if you don’t enjoy keeping your books, there could be some flaws in your accounting and tax information. Right?
IRS and state tax authorities know this: Even with using accounting software, the accounting is never perfect. The Treasury will issue a Form 4564, Information Document Request. The IRS wants a download copy of your general ledger, your transaction details. The agent will also ask for copies of bank statements and payroll records. That agent already has the detail from your fuel tax reporting and electronic payments (i.e. PayPal).
How Can You Defend Yourself Against IRS?
The wonderful thing about IRS Examinations is that the Revenue Agents (or “auditors”) must follow the Internal Revenue Manual. In “Part 4. Examination Process,” the manual explains (in painful, technical detail) of the auditor’s procedures and limits.
A company’s line of defense is working with a tax defense attorney who is familiar with the detail of the IRM (Internal Revenue Manual). Just knowing accounting is not enough for successful audit defense. Similarly, the firm that prepared the tax return may not have a strong understanding of the powers and limitations, of an IRS Revenue Agent.
The solution: Find a tax defense attorney with technical knowledge of the process. Your trust and investment in the correct representation will yield better results.