In This Article
- What Types of IRS Audits Should NJ Small Businesses Know About?
- What Are My Rights During an IRS or NJ Audit?
- How Should I Respond to an IRS or NJ Audit Notice?
- How Can Records Reduce Filing Errors and Support an Audit Response?
- Key Takeaway
- Frequently Asked Questions
- Scope and Referral
This guide explains audit types, records, deadlines, and taxpayer rights. Representation in correspondence, office, or field audits or other tax examinations is considered case by case under a separate written engagement and may be referred to an independent tax-controversy specialist. If a notice opens an examination, respond by its deadline. 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?
IRS examinations may be correspondence audits by mail, office interviews at an IRS office, or field examinations at your home, business, or representative's office. NJ uses its own audit procedures, including Office Audit desk reviews conducted primarily through correspondence; follow the location and response instructions in your notice.
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, and follow its instructions. Before deciding the content or scope of a response, seek an independent practitioner whose written engagement expressly includes audit or examination representation.
How Can Records Reduce Filing Errors and Support an Audit Response?
Records reconciled at a cadence suited to the business, substantiated return positions, and timely filing can help identify errors and document a later response. They do not prevent examination selection or promise an outcome.
Key Takeaway
If you receive an audit notice, preserve the deadline and obtain independent audit or tax-controversy representation before responding. Audit and examination representation are considered case by case under a separate written engagement. Do not send records or authorize a representative until the engagement scope is clear in writing.
Related reading: IRS Examination Records for NJ Small Businesses | Received an IRS Notice? | Tax preparation services
Frequently Asked Questions
How does the IRS select NJ small businesses for audit?
The IRS uses the non-public Discriminant Inventory Function System (DIF) and related return-selection processes. The agency does not publish the factors, weights, or thresholds that predict an examination, so no listed deduction ratio, loss, information-return difference, or cash transaction determines selection. Prepare the return from complete books, reconcile information returns, and retain records supporting every reported amount.
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 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. Audit and examination representation are considered case by case under a separate written engagement; otherwise engage an independent practitioner whose written scope covers the audit.
How far back can the IRS audit my NJ business?
The ordinary federal assessment period is three years after the return is filed under IRC Section 6501(a). A return filed before its original due date is generally treated as filed on that date under Section 6501(b)(1); a timely return received during a filing extension is generally treated as filed when received, not on the extended deadline. Apply the statutory deemed-date, omission, fraud, unfiled-return and other exception rules to the actual record. A six-year period can apply to specified substantial omissions, and there is no ordinary limitations period for a false or fraudulent return with intent to evade tax or when no return is filed. NJ has separate assessment periods. The ordinary CBT period is four years from the applicable later due date or filing date, subject to the amended-return, federal-adjustment, consent, fraud, and unfiled-return rules in N.J.A.C. 18:7-13.1. The ordinary GIT period is three years from actual or deemed filing under N.J.S.A. 54A:9-4; that statute separately provides a six-year period for specified income omissions and exceptions for fraud, unfiled returns, and other listed circumstances. Record retention is item-specific rather than governed by one seven-year rule: keep basis and depreciation records while property is held and through the applicable period after disposition, keep employment-tax and payroll records under their own schedules, and retain records for an unfiled year because its ordinary filing-based period has not begun (IRS Topic 305).
Scope and Referral
This article is educational only. Monaco CPA considers correspondence-audit, office-audit, field-audit, examination, appeals, and collection representation case by case under a separate written engagement.
For an audit or examination, respond by the notice deadline. Representation is considered case by case under a separate written engagement and may be referred to an independent tax-controversy specialist.
