What Is an IRS Audit?

An IRS audit is an examination of your tax returns. An examination may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). If the time, place, or method that the IRS schedules is not convenient, the taxpayer may request a change, including a change to another IRS office if the taxpayer has moved or business records are there.

The audit notification letter tells which records will be needed. Taxpayers may act on their own behalf or have someone represent or accompany them. If the taxpayer is not present, the representative must have proper written authorization. The auditor will explain the reason for any proposed changes.

Who Gets Audited

Your probably going to begin by saying why me? Thousands and thousands of taxpayers get audited annually. You’re not the only one. Don’t take it personally. The IRS selects returns using a variety of methods to maximize their results. The selections include the examination of participants in abusive tax avoidance transactions, computer scoring of your tax returns, the size of the reported amounts on your returns, informational matching of what you reported with that reported by others to you, examinations by industry, related examinations of other tax preparers and related taxpayers and more.

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 mellow, 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.

If you are selected for an audit, you will probably need professional help. Taxation is very complicated and technical and you will likely benefit from having a professional on your side.

  • Get professional help! Taxation is very complicated and technical and you will likely benefit from having a professional on your side. 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 mellow, 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.
  • Pay close attention to deadlines! The IRS is limited in time in which to collect from you. Similarly, your rights to disagree and certain options to exercise your rights lapse as well. Allow enough time to deal gathering information and responding. Don’t hire a professional the day of your schedule examination!
  • 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! Similarly, you can ask for second or third extensions with generally little resistance. The ability of the IRS to collect from you is quite lengthy and they will generally patiently wait it out.
  • 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 bring 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

Professional representation is best performed by tax attorneys, certified public accountants and enrolled preparers. It is most important that you inquire and gather information necessary to make an informed judgement as to the qualification of the individual or firm that will be representing you. Your previous tax preparer may not be the one best qualified to represent your interests. Inquire as to professional credentials, education and experience.

Hiring a professional may be costly. Not hiring a professional may cost your even more! Experienced tax professionals will generally outline the cost of their services, or whenever possible, provide you with a reasonable estimate before beginning any work for you.