Written By Tejas Ajmeri
Edited by Ranelli Williams, CPA, MBA
Being told that you have been selected for a Tax Audit can be quite scary, but does not necessarily mean that you are in trouble of any sort. It is important however, that you prepare accordingly, and take the necessary actions in order to ensure that the audit process goes smoothly. Any inability to do so may result in a longer audit, and an extended search into files and documents that were not initially intended to be audited. Here are some tips to help you deal and survive with the dreaded IRS Audit.
Do Not Neglect the Notice
No matter what, if the plain brown envelope appears in your mailbox, you should take it as seriously as possible. As soon as you get it, go over every detail to understand why it is that you’re being audited, and what documents and representation is necessary. As you may already know, you are required to respond to the IRS within 30 days, or else they are able to collect extra taxes, or billed as necessary. DO NOT, wait till the last minute, or wait for the IRS to contact you in order to respond. Reply as soon as possible, and take the necessary precautions to prepare for your upcoming audit.
Take Good Care of Your Financial Records
It is important to bring all of the necessary documents to the audit meeting, as well keeping all of your other documentation neat and orderly. Taking care of your financial records will not only help you, but will help the audit run smoother and more quickly. Making the IRS representatives job easier will definitely help you out, as the they want to get through the process, and review if anything is wrong just as quickly as you do. If you do not have all of the documentation requested, do not panic, as the IRS allows you time to replace them as long as they are given within a timely manner, so be sure to identify which documentation that you are missing, and request a duplicate immediately. If you are unable to obtain the documents, then any claim or deduction on your tax returns will be disallowed.
Be Truthful and Brief
Think about your meeting with the IRS representative as if you were being told your Miranda rights. “Anything you say may be used against you…” may sound extreme when talking about your audit, but it is an approach that you, and anyone else should take when under audit. The key is to be as brief as you possible can. Straightforward answers like yes, no, and I don’t know are all effective responses to give an IRS auditor, and will eliminate any chance of you giving information that isn’t necessary. Unless you’re specifically asked to explain something during the audit, do not feel the need to initiate a conversation or expand on any details, as the representatives are not only observing your taxes, but you as an individual as well, and even if you are, keep it brief. ANYTHING that may lead the representative to think that you are hiding something may be used against you, and lead to a more in depth audit than initially stated. Overall, keep your responses brief, truthful, and remain calm at all times.
In person audits can be nerve wracking, especially if you are unfamiliar with how the auditing process works. Hiring a person who understands and is able to explain all of the questions you may have about your taxes/auditing process can benefit you in a number of different ways. Instead of you representing yourself, tax professionals will represent you instead, and deal with the IRS representative directly, which would also be beneficial since they know the in’s and out’s of audits, as well as some of the tactics that the IRS uses during the process. Not only will they represent you, but they will make sure that your audit will go as smooth as possible, and ensure the best result.
Provide Copies of the Requested Documents
As professional and intimidating as IRS representatives may seem, a lot of the time they have been known to misplace important documents that were given to them by the people that they were auditing. Whatever documentation the IRS is requesting, be sure to make copies of them, and then proceed to give the copied version of the documents to the representative. No matter what, ALWAYS provide the copied version of the requested documentation.
After the Audit is Complete
Once your audit is complete, you may walk away free, having to pay extra money that you owe, or dissatisfied with the outcome of the audit. If you do wind up having to pay back money, then you will have 30 days to pay it, unless you set up a payment plan. If you disagree with your audit, you can either appeal it in court, or get assistance from a tax professional. Please be advised however that these processes can be costly, and consume a lot of your time.
In summary, there is nothing to be scared about in an IRS audit. The key is to make sure that you have all the documentation that is requested and that you remain calm and answer questions directly and truthfully as they are asked. If you find yourself in this situation and you would like professional help either for pulling together your documentation or for representation, please contact ERJ Services at firstname.lastname@example.org or 570-269-5324.