The IRS may audit you due to incorrect numbers filed on your tax returns, failure to report income, or deducting too many business expenses—or, you may be selected for an audit at random. Regardless of what prompts the audit, they all begin with a letter.
This blog will help taxpayers better understand the IRS tax audit process, as well as explain how professionals can help prepare for and manage an audit.
What To Expect
An audit begins by mail. According to 26 U.S. Code § 7602 – Examination of books and witnesses, the IRS may enforce the production of any documents the auditor deems required, and they have the authority to interview other individuals related to the taxpayer’s audit as well. Following the code of law, the IRS auditor announces what documents are required through an Information Document Request (IDR), a form listing documents related to the taxpayer’s financial activity, employment, business and so on. The IDR will list whichever documents the IRS auditor identifies as necessary to review and validate the tax returns filed. From there, the IRS employs different processes for audits: mail, office, or field.
- Mail audits tend to be the most straightforward and the most common. These audits involve the taxpayer answering questions and submitting documents through mail
- Office audits occur at the local IRS office covering those issues particularly identified by the IRS. Field examinations are extensive audits and are conducted in the taxpayer’s office, home, or employment address.
Regardless of how the audit proceeds, the key to getting through it is to prepare for the process by carefully collecting the documents on the IDR, remaining patient, and staying organized.
Working The IRS Audit Around Your Schedule
When you receive the IDR, read it thoroughly and take time to prepare. Although the audit may begin by mail, the auditor may request your audience in person should questions arise. This transition is commonly due to unexplained tax write-offs or missing documents, so—by ensuring that all documents are accounted for and all questions are answered—a taxpayer can reduce the chance of an in-person visit.
Staying organized can help the process continue smoothly. While the documents requested per the IDR are tailored to the specific taxpayer, many audits require similar documents. An expert can help you identify which documents you may want to save or keep on hand. Outside of common documentation like proof of employment, receipts from tax write-offs, and so on, items an auditor may ask for include questionable items, missing schedules or statements, and reasons for inconsistencies. Compile the documents requested on the IDR along with any other reports and records pertaining to the given tax year.
Recruiting A Professional For Help
Working with a professional, such as a certified public accountant (CPA), will not only help you prepare for an audit but professionals can also stand with you and advocate for you throughout the process according to 26 U.S. Code § 7521- Procedures involving taxpayer interviews. The code of law declares a taxpayer’s right to consultation and representation.
In addition to representation, a professional can help you through the audit process by helping you assemble and produce the required documents and by preparing you for potential questions. For example, a lawsuit settlement may be determined taxable or non-taxable, and a taxpayer falling into the former group may be asked questions similar to the following:
- Did you file in court and if so, which court? If not, did you settle out of court, or did the court issue an award?
- Did you receive a 1099 MISC?
- Was there punitive damage requested in the original claim?
An auditor may ask these exact questions, additional questions, or none of the above. Only the expert conducting the audit knows which questions to ask, but a taxpayer’s representative can help anticipate the auditor’s questions based on the mailed IDR together with the taxpayer’s employment and background.
If you receive a letter from the IRS declaring an audit, contact us here. We are ready to help you navigate the audit process.