IRS audit is a much dreaded term even for many of the honest taxpayers. There have been instances where businesses have shut down after IRS audits and also the agency is quite meticulous about detecting questionable deductions or unreported income. This instills much fear among taxpayers, especially high-income taxpayers and self-employed individuals. However, it’s important to understand that instances of business shut down make up the worst case scenarios. IRS audits are, in fact, fairly routine and can be survived well. Although you are a diligent taxpayer, getting an audit notice from the IRS might make you nervous. Here are a few guidelines that would help you survive an IRS audit confidently:
- Respond to the Notice in Time
Respond to an audit notice in time. When you get an audit notice, you usually have 30 days to respond to it. If you ignore it, the IRS may take action against you like adjusting your tax liability automatically which means you would get a bill in the next correspondence.
2. Understand the Notice
Read the audit notice carefully and understand what is being examined by the agency. The notice contains specific information and you need to understand for what you are being scrutinized. This would help you to deal with the audit well.
3. Keep Your Records Organized
Keep the items under scrutiny well documented and justified. You can also group the items in question or can highlight that they match with the tax return. This helps in quick review of the issues. Keeping all your records well organized would certainly win you bonus points because proving your deductions is your legal responsibility.
4. Emphasize the Records in Question
Pay attention and produce only the records or items that have been requested in the audit notice and not any additional documents. If the auditor asks you about any additional item that wasn’t mentioned in the audit notice, you can politely say that the records are currently at home and cannot be produced.
5. Ensure No Document is Missing
While organizing your records, if you find any of them missing, immediately replace them with duplicates. While going through the audit if you claim that your records are lost or missing, it wouldn’t help you. Auditor would surely request you to get the records or, in case of no supporting documents, the deduction in question will be denied.
6. Cooperate with the Auditor
Understand that the auditor is just doing his job and isn’t there to harass you. Auditors are trained professionals and taking out your frustrations on them or being rude with them won’t help you in any manner. Being courteous and cooperative with the auditor might help you make him understand your perspective.
7. Avoid Producing Original Documents
In an audit, provide only the copies of original documents. Handling original documents pose the risk of those documents being misplaced or lost. IRS isn’t responsible if the documents are lost or misplaced, and it would be solely your loss. Thus, always get copies of your documents for audits.
8. Be aware of Your Rights
Being a taxpayer, you should be always aware of your rights. For disagreeing about things, you must know the audit process well, the regulations governing the deductions you are claiming and your rights as a taxpayer. If you do not agree with the auditor regarding anything, you have the right to request a conference with the IRS Appeals Division.
9. Be Confident and on Point
Auditors try to extract useful information through friendly discussions like asking about your recent vacation or a recently bought house. If you fail to give a precise and confident answer, the auditor may think that you are not reporting all of your income. Answer the question with simple “yes” or “no” and in case you need to explain, be brief. Don’t give the auditor an opportunity to extend the audit because of some unnecessary information on your part.
Before being audited, it’s a great idea to hire an experienced and qualified tax professional who can argue on your behalf. Such professionals know effective strategies to resolve any conflict with IRS quickly. Although, such a service could be expensive, it may help you save a lot that you could lose if your audit doesn’t go well. Rules and regulations pertaining to tax have become quite complicated and to understand such concepts as well as your rights, hiring a tax professional is always a good idea.