IRS audits are thorough and often result in penalties (and prosecutions in cases of criminal conduct). Consequently, many people are alarmed when they get a letter from the tax man notifying them of an audit of their taxes.
There is nothing to be worried about if you don’t have anything to hide. However, it is still important to prepare properly for the audit to expedite the process and avoid harsh consequences. Here is a brief guide on what to do if the IRS is auditing you.
Know What to Expect
One of the first questions that will pop up in your mind when you receive the audit notification is, “what will happen now?” It’s easy to start to worry about worst case scenarios – instead, conduct quick research to familiarize yourself with IRS tax audits.
Start by reading the audit letter from the IRS carefully. The letter will contain important information regarding the audit, including:
- Why you have been selected for the audit
- The steps to take to comply with the audit
- The deadline for complying with the request
It is important to find out how the IRS intends to conduct the audit. The IRS can take one of three approaches:
- Correspondence audit (by mail)
- An office or desk audit (at the local IRS offices)
- A field audit (in person at your home or business)
Finally, don’t hesitate to ask as many questions as you may have regarding the process and why you were selected for the audit. Ensure that you get your information from trustworthy sources to avoid potentially costly confusion.
Prepare Your Responses & All Relevant Documents
The IRS will include instructions in the notification letter on what to do to comply with the audit. These instructions mostly entail providing the IRS agents with receipts and other financial documents relevant to the audit process.
Some of the common documents required in an IRS audit include:
- Bank statements
- Copies of old tax returns
- Canceled checks
- Medical records
- Loan agreements
Please ensure that these documents are authentic and up to date. Whether you’re being audited or not, it is a good idea to properly store and retain your financial records and documents in preparation for situations such as these.
It is important to comply with these requests on time to expedite the process and avoid harsh penalties – don’t hesitate to request a postponement to collect and organize all of the requested documents. Additionally, it is advisable to avoid providing more documents than requested (some people do this to try to prove their innocence), as this may send the auditor looking for more errors.
Hire a Tax Attorney
The IRS uses complex algorithms to identify potentially fraudulent practices that warrant an audit. Additionally, tax law and calculations are just as complex – often too complex for the ordinary person to follow. It is easy to make mistakes that warrant harsh penalties, such as expensive fines and prosecution (with the potential for serving time in jail in some of the worse cases).
Many times, it is advisable to hire a tax attorney familiar with these types of proceedings before starting correspondence with the IRS. Tax attorneys are intimately familiar with tax law, and so your attorney will do their best to shield you from unfair treatment from the IRS. Other benefits of hiring a tax attorney include:
- Helping you find and prepare all documents requested by the IRS
- Reducing the risk and severity of tax liabilities, penalties, and other charges resulting from the audit
- Defending you against allegations of wrongdoing and filing an appeal when necessary
It is especially important to hire a tax attorney if the audit will be held at the local IRS office or at your home or workplace, or if you often engage in large and complex financial transactions.
Wilson Ratledge has helped clients of all sizes with tax audits and other tax controversy situations with the IRS – call us today at 919-787-7711 today to schedule a consultation!