So You’ve Been Audited

First thing first we have to draw a distinction between types of audits. There are pretty much two types; paper audits and people audits, both need to be handled in their own way. The “tax gap” has made the practices of the IRS change a little bit. They have upped the number of audits in an effort to make up for what they couldn’t collect. In the data that is available presently (2001 being the last year of availability), to the IRS that looks like the difference of $345 billion.

In the event the IRS thinks you made a smaller, more manageable mistake, they will send you a notice in the mail. This is the first of the two types: the paper audit. Basically this will say you need to recalculate your tax owed and might ask for additional documentation for what you did or did not claim. Most often, it’s really just a case of human error. Bad math or unreported interest income being the culprits.

As with either type of audit, stay calm. No panicking. In most cases with the paper audit, you yourself can straighten out the issue once you read where the IRS stands and what exactly they are asking for. If you cannot, consulting a tax attorney could be a viable option. Be sure to respond in hast. This does not necessarily mean you need to send everything right away, but rather to let them know you are correcting the issue.

The in-person audit can be a nerve-racking experience. The best thing to do when something on your return raised concern, is to prepare and plan. A notice is sent out first saying you need to call and set up an appointment with the agency. Give yourself enough time to get your documents in order. Often these necessary documents will be specified to you in the form of a letter.

Don’t put it off or ignore the process. Letters and phone calls will be followed up with eventually. It’s like a bad horror movie. Back taxes: There is no escape.

So here is your advice for the in-person audit at your home or at your business:

If you don’t understand what the agent is asking for, call your tax attorney or pro. If you are afraid of the possible consequences which go along with what the agent is saying, call your tax attorney or pro.

If you didn’t figure all the math out in detail before, go back and write out how you came to the numbers you did. Your tax pro can put together tables listing totals that correspond to what was on the return. Have it organized and ready. Paper clips are your friend.

Double check to make sure you have everything. You did when you filed, but may not anymore. It will take time to get copies. Do so in advance.  This includes receipts, credit card statements, and bank statements.

Brace yourself for the long haul. This could take a while.

Lastly, if your tax pro or attorney can be present the day of, make it happen. They will be able to handle the event better than you can and can aid in your answering the agents questions.