Be on the Lookout for Letters From the IRS
Lost or ignored correspondence from federal or state taxing agencies could lead to an audit.
Q: I’m worried that important correspondence from the IRS may not be making it to my desk. What should I do?
A: Underreporting your income will get you into serious trouble, so once the IRS contacts you about a suspected violation, you need to act quickly. I know of a recent case in which the IRS sent a letter about this very problem to a restaurant owner. For some reason, the letter never made it to the owner’s desk. His CPA knew nothing about it, either, so no response was given. IRS officials don’t like it when you ignore their letters. The resulting mess sent the operator into a financial tailspin!
Keep in mind that the IRS has ramped up its efforts to catch business owners who underreport their income. If you own a cash business, such as a restaurant, your risk of being investigated by the IRS is higher than you might realize.
With that in mind, always make sure your address is listed correctly on your tax returns and on your Schedule C. Make sure that all relevant mail is brought directly to you. Staff should be trained to look out for important mail from the IRS or the state taxing agency and pass it on to you. And you should forward any such correspondence to your accountant immediately. Don’t ignore anything.
Finally, make sure that your accountant has identified and reported all income that should be reported to the IRS or the state. Take the time to personally review all tax returns bearing your signature—ultimately, it’s your responsibility. Your signature on a tax return essentially constitutes a legally binding promise to the government that the information on the return is accurate and that you’ve reported all required income.