Small business on the hit list with the IRS

Sam Graves R-Mo., wrote a letter to the IRS expressing his concerns about the thousands of notices that the IRS is sending out to small businesses. The reason for the notice is that the IRS is claiming that small businesses are underreporting their income.  In his letter he is stating that the IRS feels that these businesses receipts compared to other businesses are lower than the average. Grave also wrote that the business owner has only 30 days to respond to the notice and supply the IRS with substantial information to respond to their inquiry.

When returns are processed a computer scores them. The higher the score the higher the probability that a change needs to occur with the return. What needs to be accurate in these cases are bank reconciliations and deposits made to the bank accounts to be included in income. If the owner infused capital into the bank account that must be noted and properly accounted for. Bookkeeping and compiling accurate financial statements are critical when the IRS is focusing on receipts. When your accounting is slack, then you really have to scramble and do the due diligence needed before you submit records to the IRS.  Many times in my experience owners who do their on "books" do not do an accurate job in this regard and when the IRS sends a notice they start to panic. All of this can be prevented from the start. However many times in the "real world" accountants are working to fix problems as a opposed to preventing headaches.