If you receive a notice specifying that your tax records are being audited, you should know how to respond to it. A tax audit is a process where the IRS will examine and investigate your business or individual financial records to make sure your tax returns are filed accurately.
If you establish that the initial return was correct and complete, you will not be requested to furnish anything further; however, if the IRS finds purposeful misreporting or errors, you will need to pay the revised amounts as per your tax return along with any interest penalties.
Take the following steps if you are being audited by the IRS.
Why am I Being Audited?
You should inquire why your return was chosen for the audit. Your taxes may be audited because of various reasons such as:
- Specific activity or items on the tax return, like cash wages or high deductions in comparison to income
- Related examinations, when your reports involve transactions with a person or an entity being audited
- Various automatic flags such as above-average withholding
Once you determine why you are being audited, it is easier to narrow your efforts and focus and gather relevant documents.
How will I be Audited?
Then determine how you will be audited. There are several kinds of tax audits, and each has its own requirements. Knowing this would help you decide what documents are relevant and if you require a tax lawyer. For example, in a correspondence audit the agency will ask you for additional information or documents (receipts or checks) relating to a part or element of your tax return. On the other hand, in a field audit, an agent will come to your office to perform the audit.
When you know the nature of the audit, you can go through the records to find the relevant documents and receipts. Do not make the mistake of sending in the original documents or your sole copy, and do not send more documents than requested.
Immediately request duplicates if you cannot find relevant documentation. This is because IRS auditors will not accept the excuse that documents and records are lost or have gone missing. Once you have your originals and copies, get them in order, particularly in case of an in-person audit. Good organization skills will show the IRS agent that you are a meticulous and responsible taxpayer, and may cause the agent to limit the scope of his or her investigation.
Postponing your tax audit by requesting more time when you require it for organizing your records and documents can work in your favor. The IRS has to complete its audit within 3 years, unless significant underreporting of income or tax fraud is involved.
Be Courteous, Polite and Quick with Responses
You may have heard that ignorance is bliss; however, it is not true in case of your IRS audit, so ignoring the IRS letter can potentially make your situation worse. The tax authority will provide you a specific deadline to respond; so, make sure you meet it. By not responding, you will start off on the wrong foot. Don’t alienate your auditor; rather, treat her or him with respect like a law enforcement officer.
Contact an Attorney for Representation
Just as you would never talk to law enforcement (or shouldn’t anyway) without legal representation, you should also follow the same rule when being audited. A proper and well-versed tax attorney will be able to help navigate you through the audit process; at the same time a good attorney will be familiar with current tax laws and loopholes and will be make sure you do not get railroaded by the system.
If you are in need of an experienced tax attorney with a high success rate with tax audits, contact Ayar Law today and set up your free consultation (248) 262-3400.