Six Ways to Survive An IRS Audit

The chances that an IRS agent will come calling with news that your tax return was selected for an audit are mercifully low. Overall, about 1% of individual tax returns are audited each year, according to the 2012 Internal Revenue Service Data Book. Of those, about three-quarters are correspondence audits that are handled by exchanging information via snail mail. The remainder, which are selected for field audits, are conducted by IRS officers.

Even though it’s unlikely you will experience an audit, knowing what might happen if your return is selected can help smooth the process. Here are six tips that can help you get through the audit.

1. Stay Calm

Your tax return may have been selected for examination randomly, or because the IRS needs more information. Receiving an audit notice does not mean you are suspected of cheating.

2. Don’t Ignore the IRS

Most notices include a deadline by which you are required to respond. Contact from the IRS about an audit will be made either via phone or mail with a follow-up letter. (The IRS does not use e-mail to notify taxpayers of pending audits.) If you received a letter, the upper right corner should include a number specifying the reason for the correspondence. For instance, Notice Number CP05A indicates that the IRS is examining your return and needs documentation.

3. Gather Information

Once you understand the focus of the IRS examination, begin gathering the information you’ll need to respond appropriately. This may include invoices, canceled checks and receipts, as well as your tax return for the year(s) in question. Make duplicates of any documents you’ll need to provide the IRS, so you don’t hand over your only copy of a record.

4. Consult a Tax Professional

Although it may be tempting to handle an IRS audit without paying for outside expertise, engaging a tax professional is worth the cost. The professional’s experience with the audit process should enable him or her to know what information should be provided and how to answer questions appropriately, without inviting further investigation. The tax expert also can review any documents you are asked to sign — before you put pen to paper. This can be valuable whether you’re responding in person or via a letter. Finally, having an expert on your side can limit the time and stress of the audit. 

5. Expect Some Change to Your Return

IRS statistics for fiscal 2012 show that only 15% of correspondence audits with individual taxpayers resulted in no changes to the returns. For field audits, the percentage was 10%.

The numbers are more promising for corporations with assets of less than $10 million. Some 28% of these returns examined in field audits and 46% of correspondence audits resulted in no changes. 

6. Resolve Any Differences

Most audited taxpayers agree to the changes proposed by the IRS. However, you can appeal the decision through the IRS’s Appeals Office, or you can take your case to court.

Avoid the Pain

Although few taxpayers welcome an IRS audit, many can be handled without undue pain. Knowing what to expect and taking steps to prepare for the audit can make the process less worrisome and more efficient. Your Buchbinder executive stands ready to help you if the IRS ever comes knocking at your door.

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