How to Prepare for a Tax Audit and What to do if You Fail

When you’re an employee, the chances of having to go through a tax audit are pretty small, but if you’re making money without having a formal job, the chances of being audited become greater. Being notified that you’re selected for a tax audit can come as a shock. But the first thing to remember is that you aren’t actually being accused of having done anything wrong. The IRS wants to check that all the information you’ve provided is true and correct. The IRS can audit taxes for up to three years after submissions, so keeping the information you used when compiling your tax return is necessary.

There are several ways in which the IRS audits tax returns. They may simply correspond with you if they suspect you’ve made a mistake on a tax return. You may be asked to visit IRS offices, and this will generally happen in instances where IRS officials want to view certain documents because you are asking its offices to recognize higher-than-normal deductions. Field audits are the most stressful of all. In this instance, an official actually visits you or meets with you and your accountant.

Know Your Rights

By law, you are allowed to insist that an audit takes place in the presence of your accountant and your tax lawyer, and even if you’re convinced that everything will be fine, it’s wise to make use of your right to do so. Audits don’t always end with the IRS winning – it’s even possible to make amendments that mean you have extra deductions you can claim.

The IRS must explain the entire audit process in detail before they begin. Please pay careful attention to the process that will be followed, as it will help you prepare yourself and navigate the process more efficiently. Have all the documents that will be examined on hand, and if tracking them down looks like being time-consuming, ask for a postponement. You should also talk to your lawyer and accountant about the audit before it begins. They will be able to ensure that there are no surprises when the time comes.

During the audit, stay on point and don’t volunteer unnecessary information that may muddy the waters. Your tax lawyer will know if the official is treating you fairly, so remain calm and allow him or her to guide you through the process. Honesty is the best and only policy to follow, so remain absolutely professional and truthful in complying with the audit. Missing documents are the biggest of your potential problems – try to preempt this by always filing the supporting information used in your tax calculations so that it’s easy to access the relevant information.

What to do if You Don’t Agree With the Audit Decision

At the end of the audit, you may still find yourself disagreeing with the outcome, and you have the right to appeal. Your tax attorney will be best qualified to tell you whether you have grounds to appeal or whether you should accept the finding as is. Even when audits go badly, it’s sometimes possible to negotiate with the IRS and get the initial audit decision adjusted in your favor. However, if the decision has been finalized, a formal appeals process is your only option. Should that fail, your next port of call will be the relevant courts – as before. Legal help will indicate whether you should proceed.

Because your audit is such an important process, you should be very careful to record all the auditor’s questions and how you responded to them. If you appeal the audit, your records will show how you responded to these questions and which documents were taken into account in answering them.

Of course, you don’t know if your tax audit will result in issues before it begins, especially if you’ve always tried to comply with tax laws and think it should be an open and shut case. In a worst-case scenario, it’s possible to end up with an audit finding that you can’t agree with – that’s why it’s so important to involve your tax attorney from the beginning. With first-hand information on the audit and how it was conducted, your lawyer will be able to guide you through the audit – and an appeals process if this proves necessary.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.