In This Article

  1. What Types of IRS Audits Should NJ Small Businesses Know About?
  2. What Are My Rights During an IRS or NJ Audit?
  3. How Should I Respond to an IRS or NJ Audit Notice?
  4. How Can I Prevent a Tax Audit in the First Place?
  5. Key Takeaway
  6. Ready to File With Confidence?

This guide explains audit types, records, deadlines, and taxpayer rights. Monaco CPA does not offer representation in correspondence, office, or field audits or other tax examinations. If a notice opens an examination, engage independent tax-controversy counsel or another authorized practitioner whose written scope covers representation. Ordinary non-examination correspondence support is a separate, limited lane and exists only if Monaco CPA accepts it in a written engagement.

An audit notice is stressful, but prompt review, organized records, and an appropriately scoped independent representative can preserve options.

What Types of IRS Audits Should NJ Small Businesses Know About?

Correspondence (letter asking for documentation, most common), office (you go to IRS/NJ office), and field (agent comes to you, least common for small businesses).

What Are My Rights During an IRS or NJ Audit?

Taxpayers generally have rights to professional treatment, an explanation of requested information, appeals, and representation by an authorized practitioner. Those rights do not mean every CPA offers audit representation.

How Should I Respond to an IRS or NJ Audit Notice?

Read the notice carefully, preserve the envelope and deadline, gather only what is requested, and avoid volunteering unrelated information. For an audit or examination, seek an independent practitioner whose engagement expressly includes representation.

How Can I Prevent a Tax Audit in the First Place?

Organized records, monthly reconciliation, substantiated deductions, timely filing, and CPA review before filing.

Key Takeaway

If you receive an audit notice, preserve the deadline and obtain independent audit or tax-controversy representation before responding. Monaco CPA does not offer audit or examination representation. Do not send records or authorize a representative until the engagement scope is clear in writing.

Related reading: IRS Audit Red Flags | Received an IRS Notice? | How Long to Keep Records | Tax preparation services

Frequently Asked Questions

How does the IRS select NJ small businesses for audit?

The IRS uses a computer scoring system called the Discriminant Information Function (DIF) that compares your return to statistical norms for similar businesses. Returns with high deductions relative to income, consistent losses, unreported 1099 income, or large cash transactions score higher and are more likely to be selected. Random selection also occurs but is less common.

What is the difference between a correspondence audit and a field audit?

A correspondence audit is conducted entirely by mail. The IRS sends a letter requesting specific documentation for specific items on your return. A field audit involves an IRS agent visiting your place of business or your CPA's office to review records in person. Correspondence audits are far more common for small businesses and are generally limited in scope.

Can my CPA represent me during an audit?

A properly authorized CPA may represent taxpayers before the IRS under Circular 230 and Form 2848, but authorization is not a service promise. Monaco CPA does not offer audit or examination representation; engage an independent practitioner whose written scope covers the audit.

How far back can the IRS audit my NJ business?

The IRS generally has three years from the filing date to audit a return. This extends to six years if gross income is understated by more than 25%. There is no statute of limitations for fraud or unfiled returns. NJ follows similar timeframes. For most NJ businesses, keeping records for seven years provides adequate protection for both federal and state audit purposes.

Scope and Referral

This article is educational only. Monaco CPA does not accept correspondence-audit, office-audit, field-audit, examination, appeals, or collection representation.

For an audit or examination, contact independent tax-controversy counsel or another authorized practitioner whose written engagement covers the matter.