Checklist: How to Survive a Tax Audit

In an audit, you must convince the IRS that you reported all of your income and were entitled to all credits, deductions, and exemptions.

By , Attorney ● UC Law San Francisco

1. Delay the audit.
Postponing the audit usually works to your advantage. Request more time whenever you need it, to get your records in order or for any other reason. The IRS must complete an audit within three years of the time the tax return is filed, unless the IRS finds tax fraud or a significant underreporting of income.

2. Don't host the audit.
Keep the IRS from holding the audit at your business or home. Instead, go to the IRS or have your tax pro handle it. If you are asked to host an audit at your business premises, consult a tax pro.

3. Have realistic expectations.
Don't expect to come out of the audit without owing something -- the odds are against you. The average adjustment for an office audit (held at the IRS office) is $4,000; the average adjustment for a field audit is $17,000.

4. Be brief.
Give the auditor no more information than she is entitled to, and don't talk any more during the audit than is absolutely necessary. If you have something to hide, don't provide evidence to the auditor, but don't lie either. The adjustments she may make could be less damaging than if you had given her what she asked for. If in doubt, see a tax pro.

5. Don't offer other years' returns.
Don't give copies of other years' tax returns to the auditor --if you do and she sees something she doesn't like she will make adjustments in those years too. Don't bring to an audit any documents that do not pertain to the year under audit or were not specifically requested by the audit notice.

6. Reconstruct records.
If you are missing receipts or other documents, you are allowed to reconstruct records. Try to organize all records the auditor might ask for before the audit. Organization can impress an auditor that you are conscientious.

7. Negotiate.
Ask the auditor about disallowances she is considering, and defend your position. Don't try to negotiate the amount of taxes to be paid. Instead,negotiate tax issues -- for example, whether a certain deduction should be allowed. Also, don't negotiate by telling the auditor you can't pay the bill-- that's not the auditor's concern.

8. Know your rights.
Read IRS Publication 1, explaining the Taxpayers' Bill of Rights, prior to your audit. Research tax legal issues by using free IRS publications and commercial tax guides. If you are still unclear about the tax law or how to present your documents to an auditor, consult a tax pro before the audit.

9. Consult a tax pro.
If the subject of tax fraud comes up during an audit, don't try to handle it yourself. At that point, or anytime an audit is not going well, you can demand a recess to consult a tax pro. In addition, you can ask to speak to the auditor's manager if you think the auditor is treating you unfairly.

10. Appeal the result.
When you get the examination report, call the auditor if you don't understand or agree with it. Meet with her or her manager to see if you can reach a compromise. If you can't live with the audit result, you may appeal within the IRS or go on to Tax Court. For more information on appealing on audit, see Pros and Cons of Appealing an IRS Audit.

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