Contrary to popular belief, the number of people who are audited by the Internal Revenue Service, or IRS, is relatively small. According to an estimate, about one percent of people who file taxes are audited. Unfortunately, it is still possible. If you have been notified that you are being audited, here are some tips to help you survive the experience.
Obtain All Financial Records
An audit is a line-by-line review of your income tax return. You will need to prove to the IRS that you earned the income stated and that you are entitled to receive any deductions or credits that you claimed. In order to prove this, you will need to provide the IRS agent with every financial record that you used to complete your tax return.
You do have the right to recreate some of the financial records if you no longer have them. For instance, if you received rent from a tenant, you can recreate the receipt. However, it is important that you consult with your tax attorney to find out the limitations of recreating records.
If you will not have all of your records in time for the audit, contact the IRS and request more time to prepare. The IRS has to complete the audit within a three-year period following the filing of the tax return in question in most cases, so there should be time left for an extension.
Consult With Your Tax Preparer
Before the audit, meet with both your tax preparer and attorney. The tax preparer can help review your tax return with you and help you understand the figures that were entered on the return. Take notes so that you can be sure you have the correct information to provide to the auditor.
Avoid Volunteering Information
One of the biggest mistakes you can make during an audit is to voluntarily provide financial information that the IRS agent was not asking for. By doing so, you could be exposing yourself to an even more thorough examination of your finances.
To avoid accidentally hurting your case, only answer the questions that have been asked. You also need to only provide the auditor with only the documents that pertain to the year in question. Giving him or her any additional documents is essentially the same as answering questions that were not asked.
Before the audit, consider consulting with a tax attorney. The attorney can help review your financial documents and also help prepare you for the actual meeting with the auditor.