IRS Audit Tips: How to Prepare and Respond

IRS Audit Tips

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Category: Audits

Written by Madeline Delanni

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Got a note that you’re being audited? Fear not. Take a few deep breaths and then start getting prepared. You can be sure that 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 best 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 should have come with the notice you receiving saying you were being audited
• Research the issues on the IRS web site, www.irs.gov
• Discuss the situation with the professional tax preparer that 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 need more time to round 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 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

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 owe something after an audit. If this happens, there are things you can do if you can’t pay the entire tax bill that you owe after the audit.

• Meet with the auditor and/or his 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. 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.

Questions for Your Attorney

• I received a notice from the IRS, what should I do?
• I have lost some of my receipts for items that I claimed deductions, can I use bank statements?
• What information do I have to give to the IRS field agent?

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