You Have Been Selected for an IRS Audit. Now What?

Opening your mail only to discover you are on receiving end of an IRS Audit is a daunting experience; however, if you keep your wits about yourself and follow specific steps, the immensity of the ordeal will lessen significantly. Invariably, we all must deal with the IRS at some point.

Here are some steps to follow to help get through an IRS audit engagement.

Step 1: Determine The Reasons for The Audit

The first step is to get an understanding as to why the IRS is auditing you. The IRS audit letter typically details the periods being audited and the type of audit to be performed. There are many reasons the IRS may select a specific tax return for audit; for example, third-party reporting does not match data reported on tax returns or data within the tax returns, such as amounts listed for various income or expense items falling outside the typical industry average. You could have the unfortunate luck of being randomly selected out of the general tax return populous. Although not an all-inclusive list, there is a greater chance of being audited if you find yourself in any of these situations.

1. Make Significant Earnings
   1. Once you cross the $200,000 earnings threshold, your chances of audit increase. Around 50% of the tax returns audited by the IRS have annual earnings of over a million dollars.
2. Run a Cash Heavy Business
   1. IRS targets these types of businesses because, within these types of businesses, there has been a greater propensity for not reporting or under-reporting income to occur.
3. Taking Home Office Deduction
   1. You can take certain deductions if you work exclusively from home and have an area dedicated to your business. Since this can be manipulated, the IRS tends to request verification.
4. Claiming Earned Income Credit (EIC)
   1. EIC reporting has had significant fraudulent reporting; therefore IRS scrutinizes this heavily.
5. Rounding Numbers on Expense Listings
   1. IRS may consider this an indication that actual data is not being used to support the expense.
6. Have Significant Changes in Income or Expenses
   1. IRS may want to understand why and how these changes occurred.
7. Use of Personal Vehicle for Business
   1. Reported vehicle expenses are an area where many discrepancies occur. Be sure to keep records such as mileage logs can calendar entries that indicate the business purpose of the trip.
8. File a Return with Math Errors
   1. These errors generally get caught, flagging your return for audit.
9. Crypto Currency Transactions
   1. There is still considerable standardization needed here, resulting in the IRS making an enhanced effort to get more verification.

Having any of these occurrences does not guarantee that an IRS audit will occur, except the likelihood of one increases. Taking expense deductions and credits you are entitled to and can substantiate with proper record keeping will help reduce the chances of being selected. However, sometimes IRS audits are random, so even with a correctly prepared return that does not contain typical audit flags, you may still receive an IRS notice “requesting” you to explain some items on your tax return. In either case, having detailed records will help tremendously if an audit occurs.

Step 2: Do a Thorough Review of Your Tax Return

Before meeting with your trusted tax professional or an IRS agent, it’s imperative to thoroughly review the tax return being audited and the last several years of prior tax returns to ensure completeness and accuracy. With all the many inputs required to complete a tax return, unintentional mistakes can easily happen, whether during the preparation or e-filing process. Doing a thorough review will help catch any of these mistakes, and you will be better prepared to plan and discuss. The better prepared you become, the less anxiety you will experience during the audit. To help better prepare for the audit, gather proper support for items listed on the tax return, such as bank and credit card statements, receipts, invoices, and 3rd party annual reporting documents such as 1099s. By being prepared in this fashion, the audit will move quicker and with fewer challenges.

Getting Trusted Professional Help

Since dealing with an IRS audit can be extremely stressful and frustrating, it may be highly advantageous to consult with a tax professional, such as a dually licensed Tax Attorney-CPA, who can represent you in front of the IRS while providing the correct course of action. The benefits of employing such a tax professional allow one to leverage the tax professional’s years of experience and expertise in dealing with sophisticated tax situations that the typical taxpayer would not possess.

An experienced tax resolution attorney-CPA will provide, from start to finish, all tax law expertise and proper advocation, along with expert CPA audit guidance, which helps ensure that you will not end up paying more than you must.

What is a Tax Resolution Attorney-CPA-EA?

A tax resolution attorney-CPA-EA is a combined legal, tax, and accounting professional helping individuals and businesses resolve their IRS tax-related issues. Because a tax resolution attorney-CPA-EA has gone through extensive multi-licensing, cross-training, and continued education, tax resolution attorney-CPA-EAs have a more in-depth knowledge of tax law than anyone in the business. Plus, dealing with IRS on a day-to-day basis enables the tax resolution attorney-CPA-EA to properly assess and appropriately address each tax situation, regardless of complexity, with IRS representatives ensuring the engagement proceeds in the best manner possible.

A multi-licensed tax attorney-CPA-EA thoroughly understands tax regulations, laws, accounting, and audit procedures and is there to provide acute guidance and complete representation to taxpayers across the spectrum of varying IRS issues. A tax resolution could include preparing unfiled returns, finding the best resolution for back tax debt, addressing an IRS audit, properly dealing with an IRS tax lien or levy, and appealing an IRS position. Tax resolution attorney-CPA-EAs work on your behalf to negotiate IRS settlements or payment plans. They can also provide expert tax planning strategies to help you prevent future IRS tax issues. Often tax resolution cases involve various disciplines to address the problem adequately. By having a three-in-one tax professional work on your case, you are ensuring nothing gets overlooked.

Step 3: Immediately Respond to the Audit Notice

Response timing to an IRS audit notice is critical. The IRS generally gives you thirty days to respond but verify by locating the “Respond by Date” listed within the notice. The timely response sets a good tone with the IRS and avoids additional interest and penalties getting tacked on. Untimely responses can also trigger a more aggressive approach from the IRS. IRS audits tend to go much smoother when timeliness occurs.

Step 4: Show Up at the IRS Audit Appointment

If attendance is mandatory for your audit appointment, whether in person or via video conference, it is essential to your case to show up on time and well prepared. Proper time scheduling will help alleviate significant stress and enhance your ability to field questions. The whole process goes much smoother this way and helps avoid additional escalation.

Just like prompt attendance facilitates a better speedier audit, so would ensuring you have acquired all necessary documents. Starting on this as early as possible is the best way to handle this. In addition, if more time is needed to acquire documents, you can request additional time by calling the number listed on your audit notice. Waiting until the last minute to make such a request could result in it getting denied. Importantly, giving yourself enough time to review your data may prove your position was correct and the IRS was wrong. The last thing anyone wants to pay is a tax they should not owe.

Be Straight Forward with the IRS Auditor

Transparency goes a long way when working with your IRS agent. Like other government enforcement agencies, the IRS agent’s primary focus is maintaining guidelines, regulations, and laws. Mistruths will often cause additional audit requirements added to the audit, delays, and combativeness from IRS agents. Providing mistruths could lead to a criminal investigation. Being transparent is a best practice and will make the audit much smoother than being untruthful or evasive.

Maintain Good Financial Records

Good financial record-keeping is an excellent way to avert many tax problems. However, even with proper financial records, you can still incur an IRS audit due to many factors previously listed. Incorporating solid financial recordings, especially ensuring banking records match reports correctly, will help establish your position well and provide significant evidence to counter underreporting or misappropriation of funds.

The greater your personal or business income, the greater the possibility of being audited by the IRS. A higher income often involves more transactions, resulting in complex tracking challenges, hence the need for solid financial reporting. If you are self-employed or own a business with inherent IRS audit risk factors, keeping good business records can alleviate audit headaches and could even prevent an audit from occurring. When it comes to financial record keeping, it’s essential to ensure you are employing enough resources for this task, just like hiring a multi-licensed tax attorney will provide adequate coverage in all facets of an IRS audit. There is nothing like having a knowledgeable legal tax professional who also happens to have the audit and financial reporting background of a CPA.

Make Sure to Know Your Rights!

If you are being audited, know your rights throughout the audit, including the right to appeal the auditor’s findings and the right to representation. Employing your legal rights can significantly determine the outcome.

Unfortunately, unless you are dealing with the IRS regularly, along with having years of schooling and specific training, you most likely will not have a sufficient understanding of your rights and responsibilities relating to IRS actions, such as an audit. It may be prudent to employ an experienced tax professional capable of navigating the extreme complexities of dealing with the IRS. Dually licensed Tax attorneys-CPAs have significant experience and the ability to see your situation from every angle to ensure the best solution will be employed to protect your and your family’s rights. IRS Taxpayer Rights and IRS Publication.

Can I Appeal the Audit Findings?

Yes, the IRS auditor’s decisions are not unchangeable; you can appeal the decision if it is incorrect or unjustifiable.

Sadly, taxpayers’ right to appeal adverse decisions is not always readily known. IRS is not in the habit of promoting this because it could inhibit their ability to collect as much money as possible. In addition, if you are not aware of your appeal rights early on, it can be challenging to engage in an appeal. If you are going alone at this without a seasoned tax professional, it can become pretty convoluted since you are dealing with timing issues along with multiple form preparations. In addition, without a strong tax background, you may miss incorrect audit findings altogether. There have been many instances where incorrect audit findings go unchallenged, resulting in the taxpayer footing a large wrong tax debt causing significant harm to themselves and their families.

In addition, you also have the option to seek audit reconsideration if new information becomes available or a ruling has an incorrect application.

Trusted tax resolution professionals have gone through the IRS audit and appeals process many times, therefore, can do so for you efficiently and effectively. Working with them, they will address many of the nuances involved, so you don’t have to.

Step 5: Get Trusted Representation by Calling Will Harmon Now! 772-418-0949

​Being selected for an IRS audit can be a stressful experience, but it is essential to remain relaxed and take prudent steps to address the situation before it is too late. Employing professional tax advice to solidify and enact correct application audit rules and procedures and keeping meticulous records will provide the best path for the most successful audit outcome.

You are not alone if you still feel nervous about taking on the IRS since this is a typical reaction of most taxpayers going through a similar experience. Employing a trusted attorney-CPA-EA to help you in your IRS tax audit case can significantly increase your chances of success. Will Harmon, one of the best tax resolution attorneys-CPA-EAs in the business, can help you with your IRS issue. If you want to be sure of not overpaying the IRS and getting control back, give tax attorney CPA EA Will Harmon a free consultation call today or complete the online questionnaire and let him get you back on track to tax compliance!

For additional information, please see the following blog articles:

• “Help with Your IRS Tax Audit“

• “The Ins and Outs About IRS Audit Reconsideration“

• “When Should I Call A Tax Resolution Firm?“