September 23, 2014

You’re being audited by the IRS. You don’t know exactly what you are in for, but you’re convinced that it can’t be good. You have heard the horror stories and you are bracing for the worst. While it’s true that an IRS notice is almost never good news, unless you have deliberately tried to scam the IRS, you should get through the ordeal OK.

Don’t Panic

First of all, don’t panic. You aren’t going to prison. You won’t end up destitute and living under a bridge. Even if you wind up owing the IRS big time, the odds are good that you will be able to work out a repayment plan. Back in the bad old days, the IRS earned its nasty reputation for ruthlessness. Abusive tactics by the IRS have been implicated in at least one case where a taxpayer was driven to suicide. These days, the IRS has significantly changed its approach to be more cooperative with taxpayers. Just in case you’re really worried: When does the IRS file criminal charges?

Determine What Type of Audit You Are Facing

Remember the letter you received from the IRS? Go back and read it again. The letter will inform you of the type of audit you are facing, which years are under investigation. It also shows the date and time the IRS expects you to provide the information it is seeking. In the best case scenario, the IRS is pursuing a correspondence audit covering one or two elements of a single year’s tax return, with a deadline by which the IRS expects to receive your reply. Correspondence audits are conducted entirely by mail and make up 75 to 80 percent of all audits. An in-person interview audit takes place at your local IRS office. A field audit is scheduled for a particular date and time, but takes place in your home or office. It is considered the most comprehensive type of audit.

Gather Your Documentation

Once you have determined what information the IRS is seeking, it’s time to begin gathering your paperwork. If the IRS is challenging a particular deduction or tax credit that you claimed, gather whatever documentation you have to support your claim, including bank statements, receipts and invoices. Provide as much information as possible concerning the inquiries the IRS has made, but do not volunteer information the IRS has not requested. Also, make photocopies of everything that you intend to provide to the IRS. Never give up your original documents.

Obtain Professional Representation If Necessary

For a correspondence audit covering only one or two simple inquires, you probably don’t need professional representation. But if you are among the 60 percent of Americans who hire professionals to prepare your tax returns, the same preparer should respond to an IRS correspondence audit. Even if you prepare your own returns, having a professional such as an attorney from Optima Tax Relief check out your response before you return it to the IRS may save you from making costly errors. If you have been contacted for an in-person interview audit or a field audit, the IRS allows you to be accompanied by a representative. If at all possible, take advantage of this opportunity. You will likely be nervous during the procedure, and may volunteer information that might prompt the IRS agent to probe beyond the original scope of inquiry. Having a professional present reduces this possibility.

Additional Tax Tips:

The IRS Criminal Investigation Process

How to Know if the IRS Is Auditing You

How to survive an IRS tax audit