Congratulations, you have been selected for an audit! Those words are as likely as any to cause terror in the unlucky individual who reads them. The IRS may not phrase an invitation to participate in an audit exactly that way, but the gist is unmistakable: You are about to undergo an official examination of your tax return for at least one filing year. What should you do?
First, don’t panic. The most important thing is to keep your cool and approach the situation calmly. Ignoring, throwing away, or pretending you never received the notice is notgoing to make it disappear. You will be audited, with or without your cooperation, and it’s to your advantage to participate fully.
Once you’ve caught your breath, take a moment to confirm that this an authentic audit notice from the IRS. The agency will never initiate an audit through a phone call, email or text. It will always send a letter. Any other type of communication is a clear indication that the sender is attempting to scam you in some way. Don’t make the mistake of replying to this type of phishing expedition.
Assuming it really is the IRS that wants a closer look at your tax and financial information, begin by examining the letter to determine exactly what the agency intends to do. There are three types of audits:
- Correspondence audit: the most common form of IRS audit, these are conducted entirely by mail
- Office audit: this type of audit includes an interview with an agent at a nearby IRS office
- Field audit: these audits take place at the taxpayer’s home, their office or accountant’s office
When to Get Help
Taxpayers can usually handle a correspondence audit on their own. In these audits, the IRS will request specific information in order to verify one or more aspects of a return for the tax year in question. These audits frequently arise when the IRS receives information that doesn’t match what’s stated on the return (like forgotten Form 1099 income) or when the agency wants to verify dependent status, income, credits or deductions.
Even for a correspondence audit, if you worked with a CPA to prepare your tax return it’s a good idea to keep them apprised of the situation so they can assist if necessary. In some instances, they may refer you to a colleague who specializes in the audit process.
Field and office audits tend to be more complex than those conducted through correspondence. If your audit involves in-person interaction with an IRS agent, you’ll probably be best served by working with a qualified tax professional who has experience with the audit process. That’s not always necessary; it’s okay to meet with the IRS on your own. However, if you are anxious about the audit or have any concerns regarding the defensibility of your tax position, it’s wise to seek professional assistance.
No matter how simple or involved your audit is, there are a number of steps you can take to minimize stress and help the process unfold smoothly. If you are being audited:
- Read all correspondences thoroughly
- Make sure you understand all instructions and requests
- Start gathering relevant records right away
- Keep correspondences and records well organized
- Provide only the information being requested
- Never submit original documents; make copies to provide to the IRS
- Pay careful attention to all due dates
- Mail requested documentation well before the deadline
- Obtain confirmation of receipt for all correspondence you submit by mail
- Request an extension if you need additional time to complete an IRS request
- Keep your tax professional informed of all IRS requests and interactions
Most audits are relatively simple, assuming you’ve kept adequate records and reported the facts honestly on your annual tax returns. Still, nobody looks forward to getting an audit notice. Besides the inevitable anxiety an audit provokes, there’s the financial impact; most audits result in a correction that requires the taxpayer to make additional payment.
There’s no way to eliminate the possibility of being audited, but working with a qualified tax professional can minimize the chances of your return being flagged for irregularities. And if you are audited, you can trust the tax professionals at HBP to help you through each step of the process.