Corporate Tax Audits: Preparation, Defense & Avoidance Tips

Corporate tax audits can be one of the most stressful experiences for a business owner. In Maryland, businesses face audits from both the IRS and state agencies, making it crucial to understand the audit process and how to handle it effectively. At Saltzman Law, we specialize in corporate and business tax appeals, helping businesses navigate audits and protect their interests. This guide will walk you through the audit process, common audit triggers, and steps you can take to minimize the risk of penalties.

What Is a Corporate Tax Audit?

A corporate tax audit is an examination of your business’s financial records and tax filings by the IRS or state tax authorities. The goal of an audit is to determine whether the taxes reported on your returns are accurate. Tax auditors will review documents such as:

Business Tax returns
Business Financial statements
Business Payroll records
Business Expense receipts

A corporate tax audit can be triggered by discrepancies or red flags, such as large deductions or inconsistent figures in your business’ tax filings.

What Else Triggers a Corporate Tax Audit in Maryland?

Several factors can trigger a corporate tax audit in Maryland. Understanding these triggers can help businesses reduce their risk of being audited, which can be costly in terms of time invested in resolving the audit, itself.

Large Deductions or Expenses Can Trigger a Corporate Tax Audit: Excessive deductions or unusual expenses in your business, can raise concerns. Tax agencies may flag large write-offs, especially if they seem disproportionate to your income.
Inconsistent Business Tax Returns: Discrepancies between different tax filings, such as income reported on your corporate return vs. individual returns, can prompt an audit from state tax authorities, or the IRS.
High-Risk Industries: Some industries, such as corporate real estate, commercial construction, or B2B technology or SaaS companies, face a higher audit rate due to the complexity of their financials.
Random Selection Business Tax Audits: In some cases, businesses are selected for a tax audit simply through a random sampling process.

How Can Maryland Businesses Prepare for a Corporate Tax Audit?

Preparation is key when it comes to corporate tax audits. To minimize the risk of penalties, businesses should:

Keep Detailed Financial and Tax Records: Ensure that all financial records, including tax returns, receipts, and payroll data, are accurate and complete.
Review Past Business Tax Filings: Double-check past tax filings for any errors or discrepancies. Correcting mistakes early can prevent an audit from being triggered or escalating.
Consult Tax Professional: Collaborating with an experienced tax advisor or corporate attorney can help identify potential audit risks and ensure that your business filings and taxes are in order.

How Can Businesses Respond to a Corporate Tax Audit?

If your business is selected for a corporate tax audit, responding correctly is essential. Here’s how to navigate tax audits for your company:

Understand the Scope of a Corporate Tax Audit: Work with an experienced corporate tax attorney to review the notification from the IRS or state tax authorities. With the help of a corporate tax attorney, like our team at Saltzman Law, you will be able to identify and provide the documents and information auditors require, in a timely manner. When you work with legal professionals to respond to corporate tax audits, you reduce the risk of missing deadlines or key requirements.
Work with Your Business Accountant: Your company accountant or tax advisor should be involved in providing the requested documents and clarifications.
Stay Professional: Be cooperative with tax audits. It’s important to provide timely and accurate information without volunteering extra details that could raise further questions.

How Saltzman LawHelps Maryland Businesses During a Tax Audit

At Saltzman Law, we reduce the stress that comes with a corporate tax audit for Maryland businesses. Our business attorneys provide:

Corporate Tax Audit Defense: We’ll represent your business during the corporate audit process, protecting your rights as a corporate entity, while minimizing potential penalties for oversights or missed deadlines
Negotiation with Tax Authorities: We communicate with the IRS or state tax agencies on your behalf to negotiate fair resolutions to corporate tax audits, and reduce penalties.
Business Tax Appeal Representation: If a corporate tax audit results in an unfavorable decision, Saltzman Law can assist with corporate tax appeals and litigation to ensure a fair outcome for your business.

What Happens to a Business After a Corporate Tax Audit?

Once the corporate tax audit is complete, the IRS or state tax authorities will issue their findings. Depending on the results of a tax audit, businesses may face:

No Changes: In some cases, the corporate audit may result in no changes to your business taxes.
Corporate Tax Adjustments: If financial discrepancies are found, tax adjustments may be made, and your company may owe additional taxes.
Corporate Tax Penalties and Interest: Failure to comply with state or federal corporate tax laws can result in penalties, interest, and possible legal action.

How Can Businesses Avoid Corporate Tax Audits in the Future?

After resolving your business’ audit, it’s important to take steps to prevent future corporate tax audits:

Implement Robust Record-Keeping Systems: Accurate and organized company financial records reduce the risk of errors during tax filing, which could trigger corporate tax audits.
Work with Legal and Tax Professionals: Continuously work with trusted accountants and tax attorneys to ensure ongoing compliance with corporate tax laws.
Stay Updated on Tax Law Changes: Tax laws change regularly. It’s important to stay informed about new regulations that may affect your business. When you have trusted corporate attorneys by your side, they will be responsible for keeping your business compliant with corporate tax and reporting requirements.

Protect Your Business from Corporate Tax Audits

Having trusted business and tax attorneys, as well as tax professionals that regularly communicate with you is essential for responding to a corporate tax audit. If you’re facing a corporate tax audit or need assistance with corporate tax appeals, Saltzman Law is here to help.

Contact us today to schedule a corporate tax consultation and ensure your Maryland business is protected from burdensome tax audits