Audited by the IRS? Do These 5 Things

Many Americans share the fear of an IRS audit. The IRS audit process can be stressful, time consuming, expensive and in certain rare occasions can even lead to criminal charges. There are different types of audits, but overall, here's what should you do if you are ever audited by the IRS.

Tips for managing an audit by the IRS
  1. Respond Quickly One of the mistakes many taxpayers make is to not respond immediately to letters they receive from the IRS. Being in shock or denial mode will not improve your chances of winning the IRS audit. Failure to respond within the time given in the notice may lead the IRS to decide your case based on the information they have on file. Typically that is not a favorable result for you. Now, a quick response does not mean you provide full comprehensive answers, but simply letting the IRS know you are working on getting all the necessary documents to them, or better yet letting them know that your representative will contact them shortly, will buy you more time.

  2. Get Professional Help We strongly suggest that you do not represent yourself in an IRS audit. Just like you would not go to court without an attorney, you should not go to an IRS audit without an Enrolled Agent, a CPA or Tax Attorney. Your tax professional represents taxpayers for a living, knows your rights, knows the IRS code and regulations and is less likely to be intimidated by IRS scare tactics. Many clients tell us, “I am only going to tell them the truth.” I would be careful as the truth is not always enough to win with the IRS. There is a proper way to make the arguments and negotiate with the IRS.

  3. Time is on your side We know that a tax audit makes most people anxious and many say, “I just want to get it over with.” However, after the initial contact is made it is in your best interest to delay the tax audit process as much as possible as it works in your favor. The IRS can typically go back only three years, so the longer you can delay the process the less time they have to examine you and less years can be audited. This can save you thousands of dollars in representation fees and new tax liability to the IRS.

  4. Don’t answer unless asked Give the auditor no more information than he is entitled to, and don't talk any more during the tax audit than is absolutely necessary. Don't give copies of other years' tax returns to the auditor. In fact, don't bring to an audit any documents that do not pertain to the year under tax audit or were not specifically requested by the audit notice. When it comes to a legal process such as an audit “less is better”. Remember, the auditor works for the IRS. He is not your friend even if he is friendly.

  5. Appeal the results Unless you completely agree to the examination report don’t accept the report right away. Once you sign that report you will not have the ability to change the bottom line result. Ask to meet with the tax auditor or their manager and see if you can reach some sort of compromise with them. The IRS wants to finish as many cases as possible in agreement with the taxpayer to avoid the appeal process or even tax court. If you can’t live with the result, you may appeal within the IRS or go to tax court. The appeal process can be very effective and, in my experience, you usually can save thousands of dollars in unwanted penalties and unnecessary tax liability.

If you are selected for an IRS audit do not fear; you have many tools on your side to come out a winner. Just remember, you don’t need to do it yourself. Hire a tax professional to fight for you. Good Luck!

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