How to Survive After an IRS Audit

Most likely, you will not be tested. If your income is really low, there is less than 1% chance of being selected for audit . But if that happens, you must be prepared. From organizing your information to knowing your rights, here’s a guide to surviving an IRS audit.

Three main types of audit

According to IRS data analysis, if you make millions of dollars every year, your chances of being audited are roughly 1 in 6. Taxpayers reporting zero income have a 1 in 20 chance of being audited. However, for the rest of us, less than 1 in 100 refunds are chosen. …

And usually you have to raise some serious alarms in order to initiate an audit. Maybe the home office deduction was huge. Maybe your business income has dropped so much that the IRS thinks you are hiding cash. Either way – most of us don’t have to worry about auditing. However, if you are one of the few losers, this can be tricky.

All the details of your audit – how long it takes, what documents you need – depend on what kind of audit you have in your hands. And there are three main types.

• Correspondence audit : This is the simplest audit that is usually performed when you make a mistake on your tax return, such as a typo.
• Office Audit: Office auditing is a little harder (and a little scarier). You really should go to the IRS office with the required paperwork. As the legal site Lexology points out, an office audit can be done if you have a high tax deduction: possibly medical expenses.
• Field Audits: Onsite audits are similar to office audits, but the IRS comes to you. They come to your home or work and ask to see your notes. According to the IRS, you can request the transfer of an onsite audit to an IRS office , but there is no guarantee that you will be provided with such a service.

There are even more nightmarish line-by-line checks in which the IRS checks every detail of your return as part of the National Research Program , but these are extremely rare, according to Investopedia .

If you are audited, the IRS will send you a letter or maybe even call you . However, they will never send you an email. Generally, if you receive an email from the IRS, chances are high that it is a scam . And if the IRS does call, they will send a letter as well ( here’s an example of an audit letter). The letter will tell you what audit you are dealing with and what specific records the IRS needs.

Schedule an audit (or postpone it)

If you have correspondence, the IRS will tell you the deadline for mailing in updated records. However, for an on-site or office audit, you will have to schedule an appointment, usually within a few weeks. You should have enough time to put everything together, but if that doesn’t happen, you can request an extension, according to the IRS :

If you do not have all the information requested, please contact your auditor at the number provided in the notification letter to discuss what information is currently available. It may be possible to start the audit with the information available rather than postpone the meeting. The sooner the check starts, the faster it can be solved. In addition, management approval is required if the initial meeting is scheduled after 45 days of the initial action.

To reschedule, simply send a written letter to the IRS asking for a deferral. Here’s a sample you can follow.

Collect documents

Yes, the audit can be postponed, but sooner or later you will have to deal with the music. Once your audit is scheduled, it’s time to get your paperwork in order. Again, your audit letter should include a list of all the forms you need. Some of these may include:

• W-2s
• 1099s
• Bank statements
• Proof of income level
• Investment reports
• Invoices, receipts or other proof of expenses

The IRS prefers hard copies of each of these, but in some cases they may accept electronic copies . They suggest that you talk to your auditor directly to determine what is acceptable.

In some cases, it is not enough just to prove that you paid for something. For example, if the IRS questions your business deductions, you will need to prove that your expenses were legitimate, as indicated by TaxAudit.com . For this reason, you should keep detailed records of each of these costs:

There are special requirements for justifying travel, food and entertainment deductions. As a business owner or employee, you must keep a ledger, diary, journal, trip log, or similar records, and documentary evidence such as receipts and canceled checks to support the number, time, place, and persons you meet. for the commercial purpose of your expenses.

Of course, no one actually does this, and for this reason, you are allowed to recover missing documents, according to TaxDebtHelp.com . If the auditor thinks your new documents are reasonable, they can allow you to keep your deductions. However, you want to be prepared for rejection. It is possible that the auditor will not accept your documents as sufficient evidence. It all depends on the auditor, but this must be borne in mind.

Don’t be a jerk to the auditor

It seems that much of the auditing process is left to the discretion of your auditor. For this reason, it helps to remain calm and compliant. Keep in mind that the more obedient and willing you are to go through the process with them, the easier it will be. Plus, your auditor is just doing his job, so you don’t have to be a jerk .

You want to be honest and helpful, but keep it short. Here are some of the rules that TaxDebtHelp suggests :

Be as brief as possible : auditing is stressful, and when people are nervous, they tend to talk too much. Auditors are trained to listen to whatever you say. Too many words can lead the auditor to refer to other tax years that were not covered by the original audit. If possible, keep the answers to the following questions: Yes, No, I don’t know, I will have to study this, what documents do you need? What is the reason? Too much talk is a very common mistake that costs people a lot of money during an audit.

Don’t lie or make misleading statements: The IRS may ask questions they already know the answers to to see how much they can trust you. Better to be completely honest, but not chatter or say more than is required.

Likewise, they say that you shouldn’t offer tax return information for additional years. Your auditor has the power to make adjustments for that tax year, even if it was not part of your original audit. Stick to the required paperwork and keep it simple.

Consider hiring a professional

If you are dealing with a complex onsite audit, chances are you will want to call in a good tax professional .

CBS News explains your options :

You can take part in the audit and conduct it yourself, hire a tax specialist, or hire a tax specialist instead of yourself. If you choose to conduct the audit yourself or invite a representative to travel with you, you increase the risk that the agent / auditor will ask questions that you would rather not answer on the spot.

To have someone represent you, you need to submit an IRS 2848 Form . After you sign this form, the IRS does not have to contact you directly.

Fox Business notes several additional benefits when hiring a professional. For example, they are familiar with the process, so they can help make it as smooth as possible. Professionals are also more familiar with the tax code, which comes in handy if your auditor makes a mistake.

Know your rights during an audit

You may feel at the mercy of an auditor, but under the Taxpayer Bill of Rights (PDF), you still have rights as a taxpayer. Here are some key points that can help you with your audit process:

Right to Information : Taxpayers have the right to know what they need to do to comply with tax laws. They are entitled to receive clear explanations of IRS laws and procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to be informed about IRS decisions on their tax accounts and to receive clear explanations of the results.

Right to Appeal an IRS Decision in an Independent Forum: Taxpayers have the right to a fair and impartial administrative appeal against most IRS decisions, including many fines, and are entitled to a written response to the Appeals Office’s decision. Taxpayers usually have the right to go to court.

Right to Maintain Representation: Taxpayers have the right to hire an authorized representative of their choice to represent them in their relationship with the IRS. Taxpayers have the right to seek help from a low-income taxpayer clinic if they cannot afford representation.

If you go through an absentee audit, in some cases the IRS will simply tell you how much of your income is adjusted. As stated on the USLegal.com legal website, you have the right to appeal this change. You must send a written letter of appeal within 60 days of the date of the notice.

Review audit results

Upon completion of the audit, you will receive the results, also known as IRS 4549 Form (PDF) . If there are adjustments, they will be detailed here, including how much you owe (or, if you’re really lucky, you will receive a refund). If there are no changes, the report will also inform you about this.

If there are changes, you have two options. You can agree with the findings and then sign the report or form. If you owe money, the IRS offers several different payment options. Publication 594 (PDF) details the tax collection process.

If you do not agree, you have 30 days to complete any of the following actions, as per the Tax Debt Statement :

• Submit additional documents that you would like them to review,
• Request a discussion of the results with the examiner (you can do this and provide additional information for review).
• Discuss your case with the group manager or senior manager
• File an appeal: If you disagree with the proposed changes and have been unable to resolve your disagreement with the expert, an appeal may be a good opportunity.

If you do not respond within 30 days, the IRS will send you a notice. If you do not answer this for another 30 days, they will consider the results final. If you want to file an appeal, the IRS describes the process here . However, you will have to pay interest during the appeal period for any completed payments.

Auditing can be a nightmare, but thankfully most of us never have to deal with it. However, in the spirit of survival, it is good to be prepared.

More…