Odds are you will never be audited, as only about one percent of taxpayers receive audit requests from the IRS. However, if you do receive notification that you have been chosen to be audited, you can get through it by following some of these guidelines. Here are some tips on successfully surviving an IRS audit:
Once you have received notification of an audit from the IRS, do your homework. Study any relevant IRS publications, which are all available for free on the IRS website. In addition, read through the Taxpayer’s Bill of Rights, which is also an IRS document. Most audits, called correspondence audits, are conducted by mail and require additional documentation about specific items on your return. Office audits involved being called into an IRS office. In field audits, an IRS agent visits your business or home, observes your workplace and examines your records. No matter which kind of audit you’ll be undergoing, make sure you have all the information you need before it begins.
Report on Time
Be sure to remain within any deadlines the IRS has set. Usually you will have 30 days for your initial response. If you need more time, request a postponement. However, if the IRS asks to waive the three-year statute of limitations on tax audits, you should refuse this request. Though their request may not be worded as though you have the option to deny it, under most circumstances they are required to abide by this time limit. If you fail to respond within the deadlines the IRS has set, and you don’t request an extension, you could be subject to fines or penalties…plus you now have to deal with an unhappy examiner.
Do not give the IRS original copies of important documents, as the IRS is not responsible for any lost documents. Instead, gather photocopies of all requested documentation. Give the IRS only what is specifically requested and nothing extra, including tax returns from past years, as any irregularities in additional documentation may be subject to question. Because an audit is always a possibility, even if it’s only a remote one, always keep meticulous financial records, especially of items that are more likely to trigger audits. These include taxable income that does not match amounts listed on tax forms, large charitable deductions, home office deductions, business expenses such as meals and travel, and large cash transactions.
Most correspondence audits are straightforward requests for additional documentation, and you can usually handle these yourself. However, if you get called into an IRS office or you are subject to a field audit, it is best to get the help of a tax professional such as a EA or CPA. If you used a paid tax preparer to file your return, he or she can represent you as well. If a field audit makes you uncomfortable, you can request an office audit instead, but the request may not always be granted. If at any time during an audit an accusation of fraud is made, demand a recess to consult a professional. A tax professional can also help you if the IRS has made mathematical errors and/or can help you negotiate. In addition, if you feel the auditor is treating you unfairly, do not hesitate to ask to speak to the auditor’s manager. If you are not satisfied with the results of an audit, a tax professional can help you either with an appeal to the IRS, or to go on to tax court.
During an IRS audit, never be rude or vent your anger, no matter how tedious the process becomes. Always remain polite and respectful. Also, never try to cover up any relevant facts or misinform the IRS representative. Admit any errors on your part and ask what can be done to correct them. If you stay calm and go in prepared, you will survive. Just remember, it is almost never a good idea to handle a field or office audit by yourself. If you need assistance with an audit like this, R&G Brenner has Enrolled Agents & Certified Public Accountants that can help you gather, organize & present your documentation to the IRS.