It’s the ultimate financial nightmare: What if you are audited?
Many of us live in FEAR of a possible IRS audit.
However, less than 1% of taxpayers are audited each year.
Some audits come because of red flags that the IRS recognizes, and others are simply the result of random chance. In many cases, all that is needed is for you to mail in some documentation that backs up your claim of a deduction or credit. Getting an audit letter is no reason to immediately panic.
But there is always the chance that you have to go through a more difficult tax audit.
If that happens, though, you have options:
Who Represents You If You Are Audited?
If you have an accountant prepare your taxes, it might be worthwhile to have him or her handle all contact with the IRS. You can authorize an accountant, attorney or some other person to represent you.
In these cases, a professional can handle your end of the audit, and since he or she likely has everything that is needed, it can be taken care of quickly — with little trouble on your part.
What Are Your Rights When You Are Audited?
Whether you choose to get someone to represent you, or whether you handle it yourself, you have rights.
First of all, the IRS can’t audit a return filed more than three years ago unless it is a case of fraud, or there are some other circumstances. If you are audited, it can help to read Publication 1 from the IRS, which lets you know your rights.
Some of the things that you are entitled to include:
- Right to reconstruct documents or receipts that are missing.
- Ability to schedule the audit for a time and place that is convenient for you. However, understand that many experts recommend that you handle the audit someplace that isn’t your home or your place of business.
- You can ask for a recess so that you can consult someone else if you are unsure of what to do next.
- If you notify the auditor a few days in advance, you have the right to make an audio recording (no video) of the audit for yourself.
- You can make a complaint to the auditor’s supervisor if you feel you are being treated poorly.
- There is a Tax Court that hears appeals from those unhappy with the outcome of an audit.
Additionally, do not discuss anything with the auditor beyond the specific tax issue in question.
You should receive a notice in the mail (not email) letting you know what, specifically, the audit will address. Do not bring up anything extra (especially documents), and remember that you don’t have to answer questions not related to what was stated in the letter you received from the IRS.
Getting Ready for Your Audit
Make sure you prepare for your audit ahead of time.
Read the letter you receive, so that you understand what you need. Go through your tax return so you are familiar with it. Find the documentation that backs up your position so that you can bring it to the audit.
I like to keep my documentation with my copy of the tax return so that it’s all there. And I don’t claim any deductions or credits unless have the paperwork that goes with it.
During the audit, you want to remain calm and polite. If the auditor asks you a question about your finances that is not related to the tax issue politely decline to answer.
If you are calm and polite, and you have proper documentation, chances are that the audit will proceed fairly smoothly.
Remember, the best way to avoid an audit is to make sure your return is correct and that everything is in order. Even then you can still get audited, but if you have the documentation to backup your return then your audit should be an easy process.