An IRS audit can be a very frustrating process. With that said, it is important to understand that it is nothing personal. In other words, it is not as if this particular IRS agent singled you out and decided he or she wanted to audit you. Therefore, try to stay calm and keep in mind that your ultimate goal is to complete the audit with the least amount of penalties and tax as possible.
Here are some valuable IRS audit tips, in no particular order:
- Do not show up late. Everyone's time is valuable. Despite how much you may already dislike the auditor, you still have to show respect. By showing up timely, you are letting the auditor know that you understand that their time is important, which will get your audit off on the right foot.
- Do not show up unprepared. The Internal Revenue Code requires that if you have taken itemized deductions or claimed other deductions that reduced your tax liability, then you must be prepared to show the legitimacy of those deductions. Before the audit, you should review, compile, and organize copies of receipts, canceled checks, credit card statements, or other proof of payment. If the documents are organized correctly, it will make the auditor’s job easier and also increase your chances of a smooth audit.
- Be respectful to the auditor. You should keep in mind that the IRS auditor probably did not dream of becoming an IRS agent for a living. The auditors are people - generally, if you are nice to them, then they will be nice to you. If you give the auditor an attitude, you are all but asking the auditor to make you prove every single one of your deductions or else lose that deduction.
- Do not lie to the auditor. An audit is not a high school math test, and you will not be graded at the end. Essentially, if you cannot substantiate certain deductions, chances are that those deductions will just be disallowed. But, if you lie to the auditor and get caught, it could result in significant penalties, if not a recommendation for criminal prosecution.
- Do not guess at any of the answers. Along those same lines, if you do not know the answer to a question, then you should just tell the auditor that you do not know the answer or that you do not remember. You cannot get in trouble for not remembering an answer.
- Do not answer questions that you are not asked. The nice part about having an attorney represent you during an audit is that since you do not need to appear in person, you can avoid any unintentional disclosures of information you were not required to provide. Alternatively, if you do represent yourself, try not to get too comfortable with the auditor to the degree that you start volunteering information that was not even asked. You are only required to answer questions that the auditor asks involving the audit and nothing more. If you feel the auditor is asking questions beyond the scope of the audit, you may consider asking the auditor stop the audit and allow you to obtain representation.
- Be careful about blaming someone else. If you get into a tough situation, you may be tempted to place the blame on somebody else. If you do this, the auditor may follow up on the information you provide and if the auditor believes you were lying, this can result in significant penalties and possible referral for criminal investigation.
- Review your tax returns before the audit. It is important that before you appear for the audit, you understand what deductions you took and why your tax returns are the way they are. In other words, it is important to understand what questions the auditor might ask and what information you provided on your tax return in response to those issues. Even if you had a professional prepare your tax returns, you are still required to sign it and thus, you are still held liable for the information contained in the tax return.
- Speak with your tax preparer beforehand. If you are reviewing the tax return and you get to a part that you do not understand, you should contact the tax preparer (accountant, CPA, or enrolled agent) that prepared the tax return for you if you have one. He or she would be the person most knowledgeable about why certain deductions were taken and should be able to assist you in understanding what the auditor might ask.
- Do not sign the 4549 form on the spot. The 4549 notice of examination changes form is a document in which the IRS agent alleges you owe additional taxes and possibly penalties. No matter what the agent says, please remember that you are not required to sign a document on the date of the audit. You generally have up to 30 days to sign it. There are various ways you can reduce, if not eliminate, any penalties and if you sign the document, you generally lose the right to oppose it. This is because by signing the 4549, you are agreeing to the auditor’s findings.
Although an audit can be a scary process, if you prepare for the audit and act respectfully, chances are you can get through the it without too much trouble. Of course, if you believe that you may have done something which borders on criminal or you are too nervous to act confidently during the audit or you do not want to appear in person, you may consider retaining an experienced IRS tax audit lawyer. Otherwise, keep these tips in mind during your IRS audit and you should be fine.