IRS Audits or Examinations

What Is an IRS Audit?

An IRS audit is an examination of your tax return.  Tax audits can be done by mail or in person. Interviews may be at an IRS office, your home, your place of business or at your accountant’s office.

It starts with you receiving a letter from the IRS. There are several types of letters you may receive.

Some IRS letters explain differences in amounts reported that may have been omitted from your return, while other letters show differences in reported amounts.

Office examination letters simply ask you to contact the IRS and schedule a meeting in their office. These letters will usually include a list of the issues to be examined and the information you will need to bring with you.

Who Gets Audited

Your probably going to begin by saying why me? Don’t take it personally. There are many triggers that can cause your returns to be audited. The IRS selectively chooses tax returns based on a variety of factors

  • such as the size of amounts reported,
  • informational matching of what you reported with that reported by others,
  • where you omitted reporting something that was reported to the IRS by others
  • other taxpayers you do business with, or your employer was examined\
  • the type of business you operate
  • your lifestyle not matching up to the income you report
  • someone you know reported you

More than ever, you can even be chosen because you picked the “wrong” tax preparer who has had audit problems on other tax returns that may be similar to yours.

What to Do if Your Being Audited

“Many taxpayers go into an audit totally unprepared and hope for the best. Some think that if they can impress the auditor that they are nice, law-abiding, decent human beings and not common criminals, the IRS auditor will be sympathetic, and politely let them off the hook. Forget it! Tax auditors are nice, decent human beings too, but most importantly, they pay their taxes – and they don’t think too kindly of others who don’t.”

Get professional help!  Don’t go into an audit unprepared. Tax issues can be very complicated and you will likely benefit from having a professional on your side.

Pay close attention to deadlines!  Don’t hire a professional on the last day. If you missed your deadline, you have usually get an extension where you can show you’re working on it. Do “nothing” and the results can be disastrous!

Be proactive! Be sure to show that you are responsive. Doing nothing is the wrong way to go! Your responsiveness clearly indicates that you acknowledge that a problem exists and that you are dealing with it. If you need additional time, ask for it!

Be organized! Don’t show up with a box full of receipts, bills, etc. When asked a direct question, have the information readily available. Don’t hunt for the information during an examination. Don’t offer documentation that you don’t need. This can only hurt you!

Follow up! IRS auditors have tremendous case loads and only limited time to work on yours. Set deadlines and follow up. If you don’t hear back, follow up again. In writing!

Hiring a The Right Professional

Your tax preparer may NOT be the one best qualified to represent your interests. Getting the “right” professional – one who works IRS problems every day, will usually increase your chance of success significantly. You need to have an expert on your side.

Unfortunately, if there’s a problems with one year, chances are your audit will be expanded to include other tax years as well. And if you owe taxes, its highly probable you’re going to get hit with penalties and interest. Experts who work tax audits know this and can often help negotiating settlements to reduce your penalties, eliminate problems with other tax years, get you payment terms on any money you owe.