If you receive notification of an IRS office audit, knowing what to do can be the difference in whether or not you survive it. Here are the critical steps you should take:
- Don’t ignore the notice. Usually, you are given thirty days to answer an audit notice. If you ignore the notice, the IRS can eventually automatically adjust your tax liability, and it won’t be in your favor. Really, they will work with your situation; they just don’t like to be ignored.
- Read the audit notice carefully. The notice will tell you what items are being questioned and what you should bring to the audit. Sometimes, only one or two items are questioned, and it’s an easy matter to bring the relevant records and substantiate your return.
- Bring only what you need to the audit. If you bring records or documentation of items that are not shown on the audit notice, you run the risk that the audit may be expanded to include those other areas of your return. Generally though, auditors won’t be interested in anything beyond what they’ve requested unless you bring it up. IF you have something that needs to be addressed (you forgot a deduction), bring it up and address it quickly and in the most organized way you can. We recommend bringing in your additional items at the end.
- Schedule your audit for the morning. That way, the auditor can complete your case and move on to the next one.
- Be prepared. Carefully review your tax return for the year in question. Organize your records so that you can easily respond to the auditor's questions. Suggestion: add machine tapes showing totals of checks or invoices that reflect the line items in question.
- Don’t argue with an unreasonable auditor. Most auditors are people trying to do their job and most like to work in a pleasant environment. If you are unlucky enough to find yourself face-to-face with a rude or unreasonable auditor or if you and the auditor can’t reach an agreement, ask to speak to the supervisor and calmly explain the situation. Remember though, that the supervisor (not the auditor) has the authority to expand the scope of the audit beyond the audit notice, so be careful.
- Tell the truth. Deliberately lying during an audit is a criminal offense. If you’re asked a question that you can’t handle, simply end the interview at that point. Another reason to tell the truth: the auditor may be testing your truthfulness by asking you questions to which he already knows the answers.
- Don’t give original documents to the IRS. It would be a shame to have your only copy misplaced. Bring photocopies of the necessary documents to give to the auditor if they are requested.
- Make it easy for the auditor. Avoid a second visit to the IRS Office. Be respectful of the demands of their job as well. They have a workload to produce and having to re-open the file and re-familiarize yourself with the file takes time and it is inefficient for both of you. There’s no reason to get on their bad side and build resentment and ill feelings of inefficiency if you don’t have to.
- Be cooperative. IRS auditors are no different than anyone else. If you begin the audit interview with a chip on your shoulder, you’ll only antagonize the agent and make him less willing to compromise. Courteous behavior can be the difference between a favorable or an unfavorable decision.
- Stick to the subject. Don’t volunteer any information that hasn’t been requested or the auditor might turn his attention to items on your return that you’re not prepared to discuss.
- Replace any missing records. For example, if your medical deduction is being questioned and you can’t find a particular bill, call your doctor’s office and ask for duplicates immediately.
- Know your rights. In general, it’s better to settle any assessment at the audit. You are not, however, forced to accept the auditor’s decision. If you think that the auditor’s decision is wrong, you can request a conference with the IRS Appeals Division. If that doesn’t result in a satisfactory decision, the next step is to take your case to court.
- Bring your accountant with you. Although office audits are sometimes straightforward, the presence of an experienced tax professional can often result in a favorable decision.
Our office recommends sending the EA (enrolled agent) to the audit in your stead. It eliminates a whole lot of heartburn and anxiety to have a professional there to represent you.