Can a closed business be audited?

January 19, 2021 by Cheryl A.P. Patterson, EA, MSFS
closed - out of business sign

Within the tax world, we have a saying when it comes to answering any question: “It depends.”

There are several federal and state agencies that may have an interest in questioning a business’ operations and verifying their income and expenses. These agencies may include the Internal Revenue Service (IRS) and state taxing authorities that oversee income, payroll, and sales and use taxes. Each has their own statute of limitations. For example, the IRS may audit any item on a filed tax return during their “open years,” which is typically three years from the date the return was filed. Generally, the IRS will send out audit notices within two years after a return is filed and the statute of limitations on assessing state taxes varies from state to state.

Even if all tax returns have been filed, the business may still be audited two or more years in the future. If you operate an LLC, S-Corp, or C-Corp and you do not file a final return for a closed business, the statute of limitations to audit the final year the entity was operating never begins. The IRS or state taxing agency can conduct audits years later and in some states like California, the closed business may be exposed to an annual minimum tax until the entity is formally dissolved.

TaxAudit has tax professionals ready to help and has an audit defense product that should fit your needs.
 


Along with our service, your best defense when it comes to protecting your business during an audit is keeping your supporting documents for your gross receipts (invoices, contracts, deposits) and expenses (receipts and proof of payments). Your documents should be organized by category within your annual tax files for a period of at least seven years. If you have any loss carry forwards, you may want to keep all your source documents within your permanent tax files.

Yes, a closed business may be audited. With our team of experts, you can feel confident that we will represent you tenaciously when the support is provided.

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Cheryl A.P. Patterson EA MSFS
Tax Analyst

 

Cheryl Patterson is an Enrolled Agent and a Certified Fraud Examiner. She currently serves as a Tax Analyst at TaxAudit, providing advice and education to the firm's members. Trained in detecting and reporting on incidences of financial fraud, Cheryl applies her skills in the investigation of senior financial exploitation cases for the Texas Adult Protective Services agency, where she volunteers. Cheryl's experience in the private sector includes preparing tax returns, providing bookkeeping services, and forensic financial analysis. She holds a Bachelor of Science Degree in Accounting and a Master’s Degree in Forensic Studies focusing on Forensic Accounting and Investigation.


 

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