Key Steps in Preparing for an IRS Tax Audit

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It doesn’t necessarily mean you have done anything wrong, but it still is something every taxpayer should be prepared for: notification of an IRS tax audit. Of course the best approach to preparing for a tax audit would be to ensure that your tax filings don’t warrant any undue attention, but that shouldn’t prevent you from taking every deduction to which you are legally entitled. An audit may simply be based on random selection, but that is very rare. The most prudent assumption is that the IRS believes that there may be errors with your return that need to be addressed. If you’ve been selected for a tax audit, here are some of the important steps to take:

  1. Gather All Your Records – Be sure to have all of the pertinent documentation together in one place that will substantiate any deductions or exemptions you claimed on your returns. Generally, the IRS is happy to receive digital copies of records. If you don’t have all your records duplicates can usually be obtained from financial institutions and vendors, but that takes time. Therefore you should get started as soon as you are notified of the tax audit. If you are in business you should review your bank statements, and compare them to your tax returns to make sure you reported all of your income. You should have tax returns for at least the past three years.
  2. Research – Make use of IRS publications that explain the procedure for audits, your rights as a taxpayer, the appeals process and more. Keep in mind though that IRS publications do not always represent all the nuances of the law, and the IRS is not required to follow its own publications.
  3. Get Professional Help – If you haven’t already acquired the aid of a tax professional, now is the time to do so. A tax lawyer is a good idea if there is a large amount of money involved, particularly if your audit has been prompted by any questionable reporting on your part, or that of your preparer.
  4.  Do Not Volunteer Information that you are not asked for – Cooperation with your auditor is expected, but don’t offer anything more than what you are asked for. You may be providing information that leads to additional questions and taxes due. This is another good reason to have a tax litigation attorney in your corner.
  5. Buy Some Time – It is usually possible to get additional time for preparation, but if you request more than 30 days the request is unlikely to be granted, although it depends upon the circumstances, and the reasons you need more time. An audit may be by phone, in the field (your business or home), or at an IRS office. This is typically decided by the IRS based upon the complexity of your case;  although  you can request a change— it may not be granted.

Before your first meeting with the IRS you should find out what items on your return the IRS is interested in so you can prepare accordingly. If the issue warrants retaining legal help, you should consult as soon as possible with a tax law firm with experience dealing with the IRS and preparing for an IRS tax audit.

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