Preparing for an IRS Audit: 3 Useful Tips
Being the subject of an IRS Tax Audit can be intimidating. No matter how well you keep your records, being under such scrutiny can still make you hesitate. Nevertheless, an IRS audit shouldn’t make you nervous. The most important aspect here is to make sure you have complete, accurate documentation of your financial activity.
There are three different types of IRS audit you could be subject of. A correspondence audit, on which the IRS basically asks you to send them information to correct their records. This is the easiest, fastest one. An office audit, which requires you to go to an IRS office and bring specific documents. With a field audit, though, an IRS tax officer will visit your place of business and request any file or document they might consider necessary.
Regardless of the type of IRS audit, they decide to carry out, you must consider these three key concepts. Having all your documents ready does nothing but help your case. A professional attitude is a must. Also, remember you can always appeal the results if you don’t agree.
Get All Your Documents Ready in Advance
Some might say that the most important aspect of filing your income tax return. This is something that shouldn’t really be done when the due date is coming, but all year round. Being able to keep an accurate, complete record of your income and expenses is the best way to avoid an IRS audit in the first place. If you keep a tidy record and still get a notice from the IRS, you have the peace of mind that your documents are all in one place.
However, if you need to go through the process of getting documents again, don’t worry. Just start gathering your information as soon as possible, to make sure you come up with a record as complete as possible. Get in touch with as many people as possible. Bank statements and paystubs shouldn’t be a problem to get. Banks usually keep statements up to 18 to 36 months old. If you’re not able to gather every paper, document your attempts to collect them anyway.
Be Confident and Stay Professional During the IRS Audit
When the time of the IRS audit comes, we recommend hiring a professional tax consultant. This will ensure the audit follows protocol as much as it should. Not only that, but you know they won’t ask more questions than necessary. More importantly, you make sure you don’t give more information than necessary, either.
If you decide to attend the audit by yourself, remember to remain confident and to stay professional throughout the meeting. If at any point you feel the tax auditor is asking more than required, remember you have the right to interrupt the meeting and ask for a tax consultant before going any further. This will not only give you more time to get any missing paper but make the audit loosen up a bit. You can use this in your favor if it happens.
Don’t Be Afraid of Appealing the Results
Once the audit has finished and the results disclosed, keep in mind you still have the option of appealing. Usually, requesting to speak with the auditor’s manager is all it takes for them to reconsider the resolution. After that, if the outcome is not what you expected, you can appeal the results through an IRS program called Fast Track Settlement. You will meet with an Appeals Officer and present your case. This can take a couple of hours, but the result might be in your favor. If you still can’t reach a settlement, you can still submit a formal protest with the IRS Appeal Division, but this might take more than 6 months.
At this point, the only action to take left is taking the case to court. Once you get here, they only give you 90 days to respond to the IRS Notice of Deficiency. If you fail to respond, the IRS will close your case and assess the results you were disputing.
This is why we always recommend hiring a professional tax consultant. This is the best way to avoid receiving an IRS audit notice. If you still get one, though, your tax pro will know how to handle the situation, and most likely, get a resolution that favors you.