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I'm Being Audited, What Should I Do?
If you receive a tax letter from the IRS, do not panic. Here are some things you can do to prepare for an IRS audit:
- Examine your records to determine whether the IRS wants to audit the entire tax return or merely a portion of it.
- If the issue involves documenting a tax deduction or credit, send the appropriate documents to the IRS. Make copies instead of sending originals.
- If the IRS wants documents that you no longer have, try to reconstruct them.
- Bring or send worksheets that demonstrate how the tax figures in question were calculated.
- Consult a tax attorney or other advisor.
- If only a portion of the tax return is being audited, bring only the records relevant to that part. Don't volunteer information when it's not requested.
- Be organized; arrange documents in categories of the tax items in question.
- If you are not sure exactly what the IRS is looking for, ask questions. This will save a lot of time.
What Are my Chances of Being Audited?
A small number of individual tax returns are audited each year. Computer programs select which to audit by developing norms after reviewing millions of tax returns. If a tax return differs significantly from the norm, there is a greater chance that it will be audited.
It may be helpful to attach a letter detailing an explanation in the event that your income is especially low or high in a given year. That way, if the computer flags your return for an audit, an agent will see that there is an explanation and your chances of being audited decrease.
What if I made an Honest Mistake on my Tax Return?
The IRS might drop the tax penalty if you can show that you made an honest mistake in preparing your tax return. You should prepare a letter explaining the mistake.
What Are the Types of Audits?
You may be faced with different types of audits.
- In a field audit, an agent of the IRS actually comes to your workplace.
- In an office audit, you will have to provide information in person, in the IRS office.
- In a correspondence audit, you will be asked by mail for proof of deductions or other relevant information.
Should I Consult an Attorney if I'm Being Audited?
Tax law is very specialized and involves many different issues. To avoid spending too much time and money, it may be a good idea to consult a tax attorney or certified public accountant to help you prepare for an audit.
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