Preparing for a Business Office Audit: Documents the IRS Will Want

Quick disclaimer

This article is educational and does not substitute for personalized tax advice. Consult a qualified CPA or tax advisor about your specific situation. See IRS guidance for businesses at https://www.irs.gov/businesses/small-businesses-self-employed/audits.

Overview: why this matters

A business office audit (sometimes called an office or field audit) looks beyond summary numbers on tax returns and requests underlying documents that prove reported income, deductions, credits, and payroll. Preparing a complete, indexed audit file makes the process faster and reduces the chance of additional adjustments or penalties. In my practice as a CPA with 15+ years helping small businesses, well-organized documentation often shortens audit interviews and limits follow-up requests.

Primary document categories the IRS will request

Below are the documents the IRS most commonly asks for in a business office audit. Assemble these in a logical order (see the “How to build the audit packet” section).

1. Tax returns and supporting schedules

• Complete copies of the business tax returns for the years under audit (Form 1120, 1120-S, 1065, or Schedule C attached to Form 1040) and all related schedules and attachments.
• Prior-year returns where relevant (audit scope sometimes spans multiple years).

1. General ledger and trial balance

• A current trial balance and general ledger for each year under audit, exported to PDF or Excel with account explanations.

1. Bank and credit card records

• Monthly business bank statements, canceled checks (or images), and merchant processor reports for the audit period.
• Business credit card statements and supporting receipts for card charges.

1. Sales and revenue support

• Sales journals, invoices, point-of-sale summaries, daily cash reports, and monthly reconciliations that tie to bank deposits.
• 1099s or K-1s received showing income reported to you by third parties.

1. Accounts receivable and payable

• Aging reports, customer invoices, credit memos, and vendor invoices supporting material balances.

1. Receipts and invoices for expenses

• Itemized receipts, vendor invoices, proof of payment (bank or card transactions) and business purpose notes for expenses that are large, otherwise unusual, or personal in nature.

1. Payroll and employee records

• Form W-2s, Forms 941 (quarterly payroll tax returns), copies of payroll tax deposits, payroll register reports, employee timesheets, and contractor 1099s.
• Employee agreements, offer letters, immigration documents (I-9s), and personnel files when relevant to payroll issues.

1. Asset and depreciation records

• Fixed-asset ledger, purchase invoices, dates placed in service, depreciation schedules, and Section 179/bonus depreciation elections.

1. Loan and financing documents

• Loan agreements, promissory notes, amortization schedules, lender statements, and evidence of interest paid.

1. Contracts and agreements

• Customer contracts, vendor agreements, leases, partnership agreements, buy-sell agreements, and any related correspondence.

1. Inventory support (if applicable)

• Inventory counts, perpetual inventory records, purchase invoices, and the method used to value inventory.

1. Licenses, permits, and insurance

• Business licenses, professional licenses, certificates of insurance, and industry permits that substantiate business activity.

1. Corporate/organizational documents

• Articles of incorporation, bylaws/operating agreement, meeting minutes, ownership records, and capital contribution documentation.

1. State filings and returns

• State income tax returns, sales tax returns, payroll tax filings, and any related correspondence with state agencies.

1. Electronic records and accounting files

• Exported files from accounting software (QuickBooks, Xero, etc.), reconciliations, and a copy of the company chart of accounts. Keep originals, and supply readable electronic exports.

Documents specific to common audit issues

• Vehicle and travel: mileage logs, maps, receipts, and calendars that prove business use (see FinHelp guide on documenting business mileage: https://finhelp.io/glossary/how-to-document-business-mileage-to-withstand-an-irs-audit/).
• Meals, entertainment, gifts: itemized receipts and business purpose notes showing who attended and the business topic.
• Home office: square footage calculations, a floor plan, and proof of exclusive business use.
• Cost allocations: documentation demonstrating how shared costs (home utilities, auto, supplies) were allocated between business and personal use.

How long to keep records

The IRS generally recommends keeping records for at least three years from filing, but longer retention applies in certain cases: keep records for six years if you omitted more than 25% of gross income, keep employment tax records for at least four years after taxes were due, and keep records indefinitely if fraud or failure to file is suspected. See IRS recordkeeping guidance for businesses for details: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping.

How to build the audit packet (practical steps)

1. Read the audit notice carefully and note the scope and due dates.
2. Create an index and table of contents that mirrors the auditor’s request. Number pages and use dividers or PDFs with bookmarks.
3. Include a one-page cover letter that states the company name, EIN, tax periods under audit, point of contact, and a brief statement confirming the enclosed documents.
4. Supply documents in the order requested. If you cannot produce a document, explain why and provide alternative substantiation (bank records, affidavits, third-party confirmations).
5. Prepare a reconciliation memo that ties key totals on the return (sales, gross profit, payroll) to the underlying records—this speeds review.
6. Keep an audit log of communications: date, auditor name/ID, what was provided, and next steps.

How to present documents during an in-person office audit

• Assign one knowledgeable staff member to be the auditor’s point person.
• Bring paper copies and a searchable electronic set (PDFs preferred).
• Avoid volunteering extra information beyond what’s requested; answer plainly and accurately.
• Take contemporaneous notes during every meeting and get names and badge numbers.

If you’re missing records

Missing records are common. The IRS accepts reasonable substitute documentation—bank statements, ledgers, third-party records, or affidavits from vendors/customers can help. If the IRS cannot verify deductions, they may disallow them—but a clear, honest explanation with all available support reduces that chance.

When to get professional representation

If the audit covers complex issues (transfer pricing, related-party transactions, large adjustments, or payroll fraud), or if the IRS is proposing significant tax, penalties, or interest, bring in a CPA, enrolled agent, or tax attorney. A professional can assemble a formal representation package and negotiate with the auditor on your behalf (see a sample representation package: https://finhelp.io/glossary/preparing-a-professional-representation-package-for-an-irs-audit/).

Common mistakes I see (and how to avoid them)

• Handing over a disorganized box of papers. Fix: prepare an indexed packet and reconciliations.
• Not reconciling bank deposits to reported revenue. Fix: provide deposit summaries and cash register tapes.
• Providing only summaries without source documents. Fix: include the underlying invoices, receipts, and proofs of payment.

Post-audit steps

• If the auditor issues proposed changes, request the report in writing and review it carefully.
• If you disagree, follow the appeals process or request a conference with the auditor’s manager; FinHelp has guides on appeals and next steps (for example: https://finhelp.io/glossary/tax-audits-and-appeals-responding-to-an-audit-building-a-clear-audit-file-for-the-irs/).
• Implement any internal control changes to address the issues identified.

Quick checklist (printable)

• Copies of tax returns and schedules for audit years
• General ledger, trial balance, reconciliations
• Bank and credit card statements, canceled checks
• Sales invoices, deposit summaries, POS reports
• Itemized receipts and vendor invoices for expenses
• Payroll registers, W-2s, Forms 941, timesheets
• Fixed-asset records and depreciation schedules
• Loan documents, leases, contracts, insurance
• State returns and correspondence

Final notes

Being proactive—organizing records, keeping clear narratives for significant transactions, and involving a tax professional when necessary—will materially improve audit outcomes. The IRS guidance on audits and recordkeeping is the authoritative starting point: https://www.irs.gov/businesses/small-businesses-self-employed/audits and https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping.

Author’s note: In my experience, clients who prepare an indexed audit file and provide reconciliations resolve audits faster and with fewer proposed adjustments. If you need a template or help creating an audit-ready file, consult a licensed CPA.

Professional disclaimer: This content is educational and not personalized tax advice. For guidance tailored to your facts, contact a qualified tax professional.