It’s probably one of the most frightening things a person can hear – You’re being audited by the IRS. There are some steps you can take to be prepared for the audit.
The first thing to keep in mind is that only a small percentage of IRS audits are done because a problem is suspected on your tax return. The majority of audits are random selections.
Carefully read over every piece of correspondence from the IRS regarding your audit. If there is a suggestion that you did something wrong on your tax return, and especially if there’s a question about your intention on the subject – whether it was deliberate or an error – you may need legal representation. There are plenty of attorneys who specialize in tax law. Having someone on your side during the audit may be worth the cost of an attorney even if it’s a routine audit. Only you can decide whether you think the attorney is necessary.
The first thing to do when you’re facing an audit is to carefully go back over your tax return, checking the details. Usually, if you’ve made a mathematical mistake, the IRS will have caught that, but you should double check your income amounts, especially if you have income that isn’t reported on a 1099 or W-2 tax form.
Next, consider each of your deductions. If you only took the standard deduction, or if you filed either the 1040A or 1040EZ form, you’re probably not going to have more than a few numbers to check. Whether this is the case or you filed a long form and itemized your deductions, be sure that you have all your receipts in an organized system ready to show the auditor. If you can quickly produce the receipts and records requested during the audit, you’re more likely to find that the auditing session is short and to the point.
Steps
Collect the information for the tax year you are being audited and the year before and after that tax year. Ensure you have all supporting documentation (W2s, 1099 forms, receipts) for all deductions and income.
Most common math errors or small items missing will receive a "correspondence audit." A correspondence audit is one conducted through mail and is beneficial for the taxpayer because you will never be caught off guard.
Consult with your tax professional or lawyer regarding your audit.
You have a right to have the audit conducted wherever you wish - it might make more sense to have it at the IRS offices. When you go to the IRS offices, bring documentation only for the year being audited. You don't want to provide too much information to the IRS.
Be nice and courteous to the IRS agent but do not provide more information than they request.
There are three results of an audit: refund, no change, or assessing more taxes on you. If you have all of your documentation in order, you will probably walk out with no change.
Tips and Tactics
You have a right to record an audit as long as you give the IRS the right. Recording the audit will ensure you things won't change during the audit without your knowledge.
Don't say anything or provide more information than asked for.
You have a right to appeal the results of an audit.
Taking your time pays off with an IRS audit. Request an extension to get all of your paperwork in order.
Avoid signing any forms without fully understanding their contents. The IRS has a form 872 they may ask you to sign - it extends the time they can assess a tax penalty past the legal limit. Make sure you completely understand any forms - you have a right to pass them by your tax professional or attorney.
