Given the choice between being audited by the IRS and having a root canal, most Americans would probably choose the latter. But if you are facing an audit, do not panic; the IRS conducts tax audits for many reasons. The taxpayer may owe additional tax or be due a larger refund. In some cases, the IRS may simply need more information or have a question about a tax return.
Any IRS notice will be very specific as to why you are receiving the notice and will provide instructions as to what you need to do to comply. Many times the issue can be resolved without even calling or visiting an IRS office. However, if you need to meet with an IRS agent, it makes sense to talk first with an experienced tax attorney.
In the meantime, here are some helpful things to think about as you approach the audit process.
Stay Calm and Get Professional Help
First and foremost, do not panic. Remaining calm will help you focus on what you need to do to make it through the audit smoothly. You should strongly consider hiring a tax attorney to guide you through what can be a stressful and high stakes process. Not only does a tax attorney know the tax code better than you, but he or she knows how to deal with an auditor. An attorney can work as your representative so you don't have to communicate directly with the IRS.
Know What You're Up Against
Carefully review the notice you received. Knowing exactly what the IRS is challenging will help you know what to look for on your tax return and will help you gather the right documentation to challenge the audit.
Reviewing your tax return will help you remember what you filed and become more familiar with what the IRS is questioning. This will also help you discover if you made a mistake and will help you be prepared to discuss details with a tax attorney.
The Paper Trail
Having full documentation is essential to successfully challenging the audit and ensuring it moves quickly. Do not worry about items outside the scope of the notice you received. Organize your records so it is easy for the auditor to find what he or she is looking for. However, be sure to make copies and keep the original documents - the IRS is not responsible for lost documents.
The Audit Itself
If you must meet with an IRS agent in person, the audit will be one of two types. In an office audit, the notice will ask you to bring specific documents to your local IRS office. In a field/home audit, the IRS agent will contact you directly about coming to your home or business to conduct the audit. The agent's purpose is to see your home or business first hand and try to gain as much information as possible.
It is highly recommended that you have a tax attorney represent you in a field/home or office audit. You can send him or her as your representative to the IRS office or have him or her present to deal directly with the IRS agent at your home or business. He or she may be able to divert the audit from your home or business to his or her law office. That can protect you from the IRS probing into areas not addressed in the notice.
The notice should provide a time and place for the audit. If the time or place is inconvenient for you or your representative, you can ask that either be changed to better accommodate your schedules.
Memories fade quickly. Whether you will be present for the audit or not, audio recording it will protect you in the event of a later discrepancy. However, make sure to give the IRS written notice 10 days prior to the audit that you intend to audio record it. Video recording is not allowed.
Do not give the IRS more documentation than what is required. Doing so runs the risk of drawing attention to new issues. Stay strictly with documents that support the claims the IRS is disputing in the audit. If you personally attend the audit and the IRS examiner tries to question you about issues outside the scope of the notice letter, you are within your rights to refuse to answer.
Being familiar with the IRS's process should alleviate some of the stress of being audited. Significant amounts of money can be at stake in an audit; do not leave the outcome to chance. If you decide to go it on your own do not hesitate to ask for help from an attorney at any point if you are not completely comfortable with any aspect of the process.
Don't Take the Money and Run
If the auditor tries to settle with you during the audit, politely decline and let the audit process run its course. Once the audit is over, the IRS will contact you about any additional taxes you may owe. At that point you have three options:
- Pay the demanded tax amount;
- Pay the demanded tax amount and seek a refund (if you dispute the demanded amount); or
- Appeal the demanded amount to the IRS Appellate Division
In an audit, the IRS often has numerous strategies it can use to seek additional information. Even if criminal tax matters are not implicated, having a tax attorney represent you is a wise decision. With so much at stake, protecting yourself with an attorney can save you time and money in the long run.
