When preparing for a partnership tax audit, it is important to know what to expect. Successfully navigating a partnership tax audit requires careful planning and preparation, and it requires the ability to engage effectively with the Internal Revenue Service (IRS) throughout the process. With this in mind, here is an overview of what partners can (and should) expect after receiving a Notice of Selection for Examination (Letter 2205-D) from the IRS.

When you get paid, you cash your paychecks immediately. You need every dollar to cover your expenses, and you can’t afford to wait a few days for your paychecks to clear. Is this okay? Or are you setting yourself up for problems with the Internal Revenue Service (IRS)?

If you have received a Notice of Selection for Examination (Letter 2205-D), this means that the Internal Revenue Service (IRS) is preparing to audit your partnership. It also means that you need to get prepared. Dealing with an IRS partnership audit can be a time-intensive, resource-intensive and high-risk process. As a result, partnerships need to ensure that they do everything they can to minimize their risk of facing unnecessary assessments, interest and penalties.

The federal Paycheck Protection Program (PPP) and Employee Retention Tax Credit (ERTC) were supposed to serve as financial lifelines during the COVID-19 pandemic—and they did for many businesses. But, fraud under both of these programs also proved to be a significant issue, with conservative estimates putting the total cost of PPP and ERTC fraud in the tens of billions of dollars.

The Employee Retention Credit (ERC) was a limited-time credit offered to qualifying businesses for the 2020 and 2021 tax years. Unfortunately, similar to the Paycheck Protection Program (PPP) and other pandemic-relief programs, the ERC proved to be a target for widespread fraud. As a result, the Internal Revenue Service (IRS) has been scrutinizing the returns of businesses that claimed this refundable credit—and it is continuing to do so in 2023.