How to Survive an IRS Audit
- Consult an Expert
- Understand the Type of Audit
- Be Extremely Organized
- Don’t Expect Too Much
- Be Specific
Surviving an IRS audit might sound impossible. How can anyone get through the stress and uncertainty of a formal tax audit without suffering a heart attack? Although audits are intimidating, it is possible to get through them relatively unscathed. Here are five tips to follow for surviving a tax audit.
1. Consult an Expert
Taxpayers have a right to an attorney, certified public accountant (CPA) or another representative to help survive an IRS audit. It’s suggested, but not required, to use the person who prepared the taxpayer’s returns as their representative. Taxpayers can choose to be accompanied by an expert or to let the representative handle all aspects of the audit. The IRS has a special designation for experts who have completed advanced training or testing. These representatives are called Enrolled Agents. Because the services of a licensed representative are costly, taxpayers should consider the extent of their audits before spending thousands of dollars on a representative.
2. Understand the Type of Audit
The IRS uses three different types of audits: Correspondence, office exam and field visit. The simplest to deal with is a correspondence audit; this is conducted entirely through the mail. A taxpayer may be asked to fill out forms or send in paperwork, but they do not have to meet with an IRS agent in person. For an office exam audit, the taxpayer must visit the IRS’s nearest office and bring specific records. These interviews can last several hours. The most dreaded type of audit is the field visit, where an agent comes to a residence or place of business and examines records, accounting books and papers. The IRS will clearly inform taxpayers of which type of audit will be performed.
3. Be Extremely Organized
Typical IRS auditors are fastidiously organized. They enjoy spreadsheets and color-coded documents. To survive an IRS audit, taxpayers should do everything they can to make their auditors’ lives easier. That’s because auditors have some leeway in which deductions they allow, which years they audit and how forgiving they are towards errors. If a taxpayer brings a well-organized array of documents, the auditor will be more likely to offer some leniency.
4. Don’t Expect Too Much
Part of surviving a tax audit is going in with reasonable expectations. When the IRS makes the decision to audit a taxpayer, it’s because the agency has good reason to suspect something is wrong with the taxpayer’s returns. Even if the IRS can’t prove all of the mistakes it suspects, the taxpayer will still owe some money at the end of the audit. According to Nolo, an office audit comes with an average adjustment of $4,000. For field audits, the average is even higher — $17,000. It’s very rare for a taxpayer to escape an audit without owing any back taxes or fees.
5. Be Specific
The quickest way to complicate an IRS audit is to provide unnecessary information. If the IRS requests tax returns from 2010 and 2013, it is unwise to also provide the returns from 2011 and 2012. That’s because the auditors might decide to widen the scope of their investigation, meaning more fees and back taxes will be owed.
By following these tips, taxpayers can minimize the damage an audit causes to their lives. Surviving an IRS audit isn’t easy, but it is possible.