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. Some audits are worse than others.
TYPES OF AUDITS
- 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
WHAT TO DO IF YOU RECEIVE A NOTICE
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 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 the audit agent doesn’t have to go looking through stacks of unrelated documents & 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.
PREPARE FOR THE AUDIT
- Consult with a tax attorney or CPA to understand the issues the IRS is focusing on
- Thoroughly review the Taxpayers’ Bill of Rights, which came with the notice you were being audited
- Research the issues on the IRS website (www.irs.gov)
- 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 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
- Answer questions concisely
- Don’t lie
- If you sense things aren’t going well, don’t hesitate to stop the audit to 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
AFTER THE AUDIT
The IRS must complete an audit & give you an examination report within three years of the time you filed the return. Most people come out of an audit owing something. But what can you do if 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 & results. See if they’re willing to bend a bit to avoid an appeal
- Appeal the audit results
- Take an appeal to Tax Court
Appealing your case within the IRS or to the 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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