Getting a notice that you’re being audited by the IRS
can strike fear in the hearts of the bravest of taxpayers.
But educating yourself and following a few simple rules can
make the process less painful.
Kinds of Audits
Some audits are worse than others. You can expect either:
-
A correspondence
audit, by mail, asking for a straightforward
answer (by mail) on less complicated issues, such as proof
of deductions
-
An office
audit, held in the IRS office, where you’ll
be asked to produce receipts and other documents related
to specific issues or
-
A field
audit, where the IRS agent comes to your home
or place of business
Producing Financial Documentation
The IRS has the right to look at your financial records
to see if you’ve reported your deductions, exemptions
and credits accurately. But it’s to your advantage
to:
-
Ask
questions of the IRS agent ahead of time to make
sure you understand exactly what the IRS is looking for
-
Provide
only the documentation that’s being asked for,
and nothing more
-
Organize
the paperwork you turn over to the IRS, so that
the audit agent doesn’t have to go looking through
stacks of unrelated documents and find something else
that needs auditing
-
If you’re
missing receipts or other documentation, try to reconstruct
the information as accurately as you can, based
on other documentation
Preparing For An Audit
There’s a lot you can do ahead of time to get ready
for an audit:
-
Consult
with a tax attorney or certified public accountant to
understand the issues the IRS in focusing on
-
Thoroughly
review IRS Publication 1, the Taxpayers’ Bill of
Rights, which came with the notice you were being audited
-
-
Discuss
the situation with the professional tax preparer who helped
you with the return(s) in question, and decide whether
he or she should be present with you in the audit
-
Don’t
hesitate to ask for a postponement of the audit, if you’re
having trouble rounding up records
During the Audit
Many lawyers advise having a lawyer or certified tax professional
represent you during the audit, instead of going yourself.
If you're going to be present during the audit:
-
Don’t
volunteer information of any type
-
Answer
questions as concisely as possible
-
Don’t
lie
-
If you
sense things aren’t going well, don’t hesitate
to stop the audit so that you can consult with a tax attorney
or accountant before continuing
-
Ask to
speak with the audit agent’s supervisor if you think
the agent isn’t being fair
The IRS must complete an audit and give you an examination
report within three years of the time you filed the return.
Appealing Audit Results
Most people come out of an audit owing something. But what
can you do when you can’t live with the tax bill you
get after an audit?
-
Meet with
the auditor and/or his or her supervisor to discuss the
process and results, and see if they’re willing
to bend a bit to avoid an appeal
-
Appeal
the audit results to the IRS Appeals Office
-
Take an
appeal in Tax Court
Appealing your case within the IRS or to Tax Court will
often net you some savings (although seldom a complete victory)
and buys you time to figure out how you’ll pay the
ultimate tax bill.
Unfortunately, interest continues to build on the amount
owed while you’re appealing, and an appeal within
the IRS may uncover issues not spotted by the initial auditor.
Instructions for appealing an audit result should come
with the examination report, but you can also find this
information at your local IRS office.
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