The IRS Audit Wave Is Coming: Why Business Owners Must Fix Their Records Now

The IRS may be quiet right now, but Joe DiChiara warns business owners not to get too comfortable.

In this episode of How to Win Big at Business, Joe explains why the next wave of IRS audits may look very different from the old days. Instead of face-to-face meetings with an agent, business owners may be asked to electronically or digitally provide bank statements, invoices, receipts, and records — and if they cannot prove their deductions, the IRS may simply disallow them.

Joe shares real audit stories from business owners who were hit with massive proposed tax assessments, including one trucking company that faced hundreds of thousands of dollars in potential IRS and state tax exposure. The key lesson? Even legitimate business expenses can be denied if the records are sloppy, missing, or poorly organized.

This episode is a wake-up call for self-employed professionals, consultants, contractors, freelancers, and small business owners who have gotten too relaxed with bookkeeping and document storage. Joe explains why your receipts, invoices, bank statements, business journals, travel documentation, payroll records, and expense support are not optional — they are your defense if the IRS comes knocking.

You’ll learn why now is the time to build a clean electronic filing system, create a smart naming convention, organize records by year, and stop treating recordkeeping like an afterthought.

Because when the audit letter comes, it may already be too late to fix the mess.

If you’re a self-employed professional trying to build a real business, this podcast was created for you.
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Thanks for listening!

If you want fewer headaches, fewer IRS surprises, and more smart systems running your business (so YOU don’t have to), let’s talk.

Book a strategy call: www.timewithjoe.com

Because running a business shouldn’t feel like wrestling an octopus… alone. 

Also check out:
www.Bedrock360BusinessSolutions.com (Complete Coverage)

www.Bedrock360TaxSolutions.com (Tax Gaurd 365) 

www.Bedrock360BusinessTraining.com (Courses)

Transcript

SPEAKER_00 0:05

We command you, laying all other business matters aside, to report to IRS Agent at so-and-so address, bringing all of your books and records for the period of the last three years. If you've ever gotten a letter like this, you know that you've been audited by the IRS. My name is Joe DeCara, and welcome to How to Win Big at Business. I'm a CPA for over 40 years and a lifelong entrepreneur. And I know better than anybody that that's what keeps business owners up at night. That dreaded IRS letter. Well, I hate to break the news to you, but unfortunately, I know that since COVID, those letters have been few and far between. Everyone knows that the IRS has been decimated, not only by COVID, but by Donald Trump basically giving 26,000 IRS employees a pink slip. In other words, he gave them a deal to retire early. So not only were they understaffed and underfunded before COVID, now it's been even worse. If you're an accountant, you know, you know the backlash that has had has come into our offices. Unbelievably ridiculous notices, not being able to get through to them on the phone, and all kinds of other unexplainable issues at the IRS. But that's not going to be forever, folks. At some point, people are going to wake up and give the IRS the funding that it needs. They're going to be able to utilize all the latest technology. And guess what they're going to be using it for? They're going to start auditing people by the millions, probably by the tens of millions. Why? Because it's become unbelievably inexpensive. There's no more sending a letter and asking a business owner to produce their books and records. No, everything is going to be machine-driven, AI generated, and done via facts, believe it or not. Yeah, the old-fashioned facts. And I'm going to tell you why. Submitting a fax is not subject to all of the electronic hacking that all the other technology is. So it's easy for the IRS to ask somebody to just fax in all of their information. And believe it or not, and I've I saw this to start to happen right before COVID. I got two audit cases that came to me through referrals. Both business owners were audited electronically. In other words, they never actually met face to face with an IRS agent. What they got was they they received a letter instructing them to fax them all of their records, all of their invoices, all of their bank statements. And one of the companies, one of the companies was a trucking business with a substantial amount of paperwork. It was thousands, thousands of pages, and they didn't care. They don't care what it cost the business owner in time and money to fax all of this information. Now, luckily, the trucking business owner had actually been an office administrator. She wasn't the original owner. Her husband was. He passed away. She got left with running the business. She got audited because of an incompetent accountant. And luckily for her, she had all of the business records. What transpired with her was really criminal because what the agent did was he basically, not basically, literally, eliminated all of her deductions, claiming that they weren't business, they weren't bona fide business expenses. By the time I got the case, I it was the statute of limitations was coming up. I pointed out the fact that the agent went rogue because obviously, you know, you don't have a trucking business with hundreds of thousands of dollars in insurance, uh, tens of thousands in truck repairs that aren't for business. She had payroll, bona fide payroll that she was paying her trucking uh truck drivers. So luckily, I was able to get her off the hook. The other client had set up a business. They did sloppy accounting, the the accountant filed a bad return again through no fault of their their own. They got audited. Same result. All of the expenses were disallowed because they claimed they weren't bona fide business expenses. So, in both cases, I was able to get them off the hook. Now, these are two businesses that actually had the records, and that's what I'm I want to talk about. Business owners are notoriously lazy when it comes to keeping records, and and they've gotten away with it, they've gotten away with it for a long time. But those days are gonna be over, folks. Now it might take a year or two. So if you start now, you're gonna be safe. If you start saving all of your records in an organized electronic file system with a good naming convention, at least you'll be ready. You'll be ready when you get that letter. Because trust me, I've been doing this for over 40 years. I've seen my share of tax problems, and the the writing is on the wall, folks. The government wants the money. There is what they call the uh the tax gap. The tax gap is what the IRS believes they're owed and what they actually collect, and it's tens of billions of dollars, billions and billions of dollars. And all they need to do is flick a switch and start auditing tens of millions of people. They're not just gonna focus on the sole proprietors with sloppy records, that's been their target since before I started in accounting. They're gonna be auditing all kinds of businesses. Now, if you don't know what books and records are, books and records are everything that tells the story of your business. And you're gonna have to prove that every deduction is a bona fide business deduction. And the way this is gonna work is pretty simple mechanically. So they're gonna have your tax return. Your tax return has all different categories. They're gonna get your receipts, it's all gonna be compiled, summarized all electronically. In other words, a human being won't have to touch it. It's gonna summarize all of the numbers, do a comparison to what you have deducted on your tax return. And when there's a difference, you're not they're not gonna ask you for an explanation, they're gonna send you a bill. They're gonna send you a bill. And if you agree to that assessment, it's still not over. It's not over because there's another part to the puzzle, and that's the state part. So if you're in a state that that has an income tax, not only will you have to pay the IRS, but the IRS will notify the state, and then you'll have to pay the state. So that trucking client who was looking at a $250,000 assessment from the IRS was also looking at another $100,000 plus interest and penalties with New York State. Many people are unprepared. Tens of millions of businesses. And there's only, and I say only in parentheses, right now, May of 2026, there's 33 million businesses. I'll bet you over 20 million of them are not prepared for an audit. So if you're not prepared, today is the day to start getting prepared. Believe you me, the day is coming. The writing is on the walls. Now you could choose to not be prepared and then pay the price later on. You know, there used to be a commercial for an auto repair uh company. I forget the name, but I'll never forget it was you could pay me now or pay me later. And if you pay me later, the bill is gonna be a lot more than if you just pay me now. So invest the time. You need to do it just as a matter of good business practices. You need to be able to match up your invoices with your legitimate business expenses, and a lot of times you need to keep business journals. That's part of your books and records. Document why you went on a trip, what you did, what business activities did you did you enjoy there? It's okay to go to Hawaii on business, but make sure that you're conducting business. Without those records, the IRS automatically disallows everything. So that's my story. I'm sticking with it, Joe DeCara. God bless. I will see you in the next episode of How to Win Big at Business. And by the way, this is episode number 26. We're six months into this, folks. So congratulations. Download the the episode, remember it. This this could be an episode that you're gonna thank me for later. You you might be cursing me as you're doing it because it's it's gonna be painful. It's gonna be painful because if you've never done record keeping, it's it's not it's not one of those things that people take up as a hobby. This is where it would be good to get a virtual assistant. Let them do it, follow good business practices, set up correct folders, set up a good naming convention, have everything organized by by year. And and again, that's my story. I'm sticking with it. See you on the next side. Thank you.