As a business owner, it is essential to be aware of excise taxes and the regulations that surround them. There are specific taxes that apply to goods and services, and failure to report and pay your excise taxes can result in hefty penalties from the Internal Revenue Service (IRS).
One way the IRS ensures businesses are compliant with excise tax regulations is through audits. Excise tax audits are a way for the IRS to verify that a business has reported and paid the correct amount of taxes. These audits can be stressful and time-consuming, but with preparation, you can minimize any potential issues.
Form 720 is the Quarterly Federal Excise Tax Return. This form is used to report excise taxes, such as those on fuel, tobacco, alcohol, firearms, and air transportation. It is essential to file Form 720 every quarter, even if you have no excise tax liability.
The auditor will start by reviewing your Form 720 returns for the last three years. The auditor will likely want to see documentation that supports the numbers reported on the returns.
Here are some steps you can take to prepare for an excise tax audit:
Excise tax audits can be intimidating; however, by taking the time to prepare and ensuring compliance with regulations, you can minimize the risk of problems arising. Remember to keep accurate records, file Form 720 every quarter, and be transparent during the audit process. With these precautions, you can keep your business in good standing with the IRS.