Despite your best efforts, you’re being audited – what do you do now? An IRS audit notice can strike fear in the hearts of the bravest of taxpayers. While the IRS allows taxpayers numerous opportunities to save on taxes, it is ultimately your responsibility to keep accurate records to prove your deductions. Collecting and organizing your records throughout the year will make it easier to prepare your return and reduce the likelihood of errors. It will also allow you to build your defense if the IRS chooses to dispute your return.
Don’t ignore an audit invitation. Call the phone number on the notice and discuss the arrangements, or hire a tax professional to do it for you. The best person to represent you is the one who prepared the tax return. They know what information was used to produce the numbers.
During an audit the IRS isn’t just looking for proof that you spent the money shown on the expense lines of your tax return. They are looking for two more major things:
* The expenses you reported really were business-related
* That you have actually reported all your income
There are three types of audits – a Correspondence Audit where everything is done by mail, an Office Audit held at a local IRS office and a Field Audit where the IRS comes to your home or business.
Know your rights, provide the documentation you are being asked for but don’t volunteer additional information, organize your paperwork so the audit may go quickly. If you have questions, talk with a professional tax preparer or an attorney to understand what the IRS is looking for and why. If you sense things aren’t going well, don’t hesitate to stop the audit to consult with a tax attorney or your tax preparer before continuing. Ask to speak with the audit agent’s supervisor if you think the auditor 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.
Most people owe something after an audit. Penalties range from: 20%, 75%, Interest Due and in some cases imprisonment. If you can’t afford to pay the entire tax bill all at once or if you don’t agree with the auditor’s decision, you can meet with the auditor to discuss the results, ask about a repayment plan that will fit your budget or appeal the audit results to the IRS Appeals Office.
Although audits are unpleasant, you don’t need to dread them if you’ve kept your financial records organized, up to date and above board. If you are chosen for an audit, make sure the examination is scheduled far enough in advance for you to get ready. Solid preparation should enable you to get through the audit with a minimal amount of stress.