Understand the audit process
If you received an audit notice from the IRS, here are some things you need to know to make sure your experience is as painless as possible. The last thing you want to do is ignore the documentation request. Even if you don’t have what is requested, you can avoid further hassle and unnecessary expense by contacting the examiner and requesting additional time to comply.
Please note that the fact that you have been selected for an audit does not automatically mean that you have done something wrong. Tax returns are screened in a variety of ways to include computer random selection, document matching, or related screening. The IRS protects taxpayers by providing certain rights, when it comes to audits. The first is “the right to professional and courteous treatment by IRS employees, the right to privacy and confidentiality about tax matters, the right to know why the IRS requests information, how the IRS will use it, and what will happen.” if the requested information is not provided, the right to representation, by himself or by an authorized representative, the right to appeal disagreements, both within the IRS and in court” (Irs.gov/pub 1). If you experience a problem regarding your rights as a taxpayer, you can contact Taxpayer Advocacy for help.
The possibility of being audited is one of the reasons why it is important to keep records supporting your credits and deductions for three years from the date of your statement(s). One of the most difficult aspects of going through an audit is having to gather the required documents to substantiate your position. Remember, audits are done to document what is on your return with proof. Not having the necessary records could result in adverse or unwarranted results that could cost you money.
Audits are generally conducted over the phone or in person at your local IRS office, your home or office, or your tax professional’s office, depending on your situation. The IRS will send an audit notice by phone or mail, giving you plenty of time to prepare. If your audit results in changes made to your return, those changes will be fully explained and instructions will be provided if you decide to appeal the IRS findings. If you agree with the results of the IRS audit, you will be asked to sign the examination report or a similar form.
If you find yourself with a tax liability after being audited and are unable to make a full payment, the IRS offers several payment options designed to help taxpayers in financial difficulty. See Publication 594 on irs.gov for more information on the collection process. Remember, don’t be afraid the IRS will respect them. In most cases, negative results stem from ignoring warnings and/or not asking for help when you need it.