Construction Business Management


Dealing with the IRS

As a businessman for more than three decades, my only out-of-the-ordinary dealings with the Internal Revenue Service have been limited to one formal audit and probably a dozen letters from the agency requesting additional information about an item on my personal or corporate tax returns.

The audit lasted less than an hour. It was held at the office of my CPA, who provided the requested records. The IRS agent was satisfied after examining several of them and made no changes in my tax return. As to the letter inquiries, I cannot remember even one that my bookkeeper or CPA did not resolve with a phone call or by providing a clarifying document to the IRS. (Picture me knocking on wood.)

Here are a couple of factors I believe can at least reduce your chances of an unpleasant encounter with the IRS:

  • Convey to your bookkeeper and your outside CPA your intent to comply with tax laws and to meet filing and payment deadlines without exception. This in no way precludes you from scouring the tax codes for every legal means of reducing your tax liability.
  • Use a CPA who remains current on the ever-changing tax laws and court rulings, has no important blemishes on his reputation, and is recommended by his clients. Professionalism and reputation are attributes that are not likely to be ignored even by an IRS agent, who after all is a human being and who has some latitude in his handling of your situation.
  • Experts agree that it is better to let your CPA represent you in correspondence and meetings with the IRS, without your presence.

Even so, it is easy to draw unwanted attention from the IRS. For example, there are limitations on how much salary you as the owner of your firm can draw. A contractor I know was investigated by the IRS for taking what the agency declared excessive compensation over a period of years. The IRS's claim was incredibly for millions of dollars for unpaid taxes, interest, and penalties. The contractor won the dispute after a mind-warping two-year legal battle but spent more than $200,000 defending himself in addition to his cost in terms of distraction from running his business and mental anguish.

There's one IRS factor that is beyond your control. The IRS annually swoops down on a small number of supposedly randomly selected taxpayers and examines every morsel of their tax returns for a certain year. Even if these unfortunate taxpayers' business and personal income tax returns are 100 percent clean, their businesses and/or personal lives are disrupted. Your chances of being one of these unlucky taxpayers are extremely low, but the program is something you should know about.

The IRS provides for free a wealth of information at its website, From there you can go to areas of interest such as construction.

The author of this article, Nick Ganaway, was a successful general contractor for 25 years. He is a consultant in Atlanta, Georgia for contractors and other small business owners. Nick has described how to set up and manage a construction business that is profitable, enjoyable, and enduring in his book Construction Business Management: What Every Construction Contractor, Builder & Subcontractor Needs to Know.


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