July

How You Handle Yourself During an Audit Has a Huge Impact on Your Audit Outcome or most people, a night out at their favorite restaurant produces the anticipation of a wonderful meal F partnered with outstanding service. Restaurants shouldn't take on an audit alone. The most successful restaurants are those that consistently deliver both. A happy customer, sometimes memorialized by a stellar review, is the cherry on top for the restaurant owner beyond what hopefully will be a long run of solid profitability. For restaurant owners, however, there are certain “reviews” they would prefer not to receive—specifically IRS tax audits. Let’s face it: no one ever really wants to smell what the IRS is cooking in its kitchen unless it comes from a recipe for a tax refund. To add to restaurateurs’ angst, businesses that operate in the restaurant industry present a greater concern to the IRS because they are cash-intensive and the IRS sees them as a higher risk for underreporting income. We’ll explain how those who operate in this industry can reduce their audit risk and prepare if an audit is unavoidable.

correctly according to the tax laws and to verify the reported amount of tax is correct.” During 2023, the IRS audited fewer than a half percent of individual returns filed and only about three-fourths of a percent of corporate returns filed. There are three main types of audits: Correspondence —the most common audit type; it is conducted by mail. Office —the type is more common with complex tax returns. An office audit invites taxpayers to have the audit conducted at an IRS office. Field —the most comprehensive type. A field audit is conducted in the taxpayer’s home or business. For each audit type, the IRS provides a written request for documents via a formal Information Document Request (IDR) form. The IRS will not call a taxpayer or business to start a civil audit. If you receive a phone call as a first communication, it is likely a scam. If you are unsure of a communication’s authenticity, you can contact the IRS at (800) 829- 1040. Common Audit Triggers Inadequate reporting and supporting documents A taxpayer is generally responsible for every item claimed on the individual’s tax return; some sort of book or record must exist to support each item listed on the return. HOSPITALITY NEWS JULY | Page 19

How to Reduce Your Audit Risk

First, it’s important to understand what an audit is. The IRS website defines it as “a review/examination of an organization’s or individual’s accounts and other financial information to ensure that information is reported