How to Handle an Income Tax Audit from the IRS

There are few rules about who gets audited by the IRS and why. Maybe it's something you did; maybe it's something you didn't do. Short-form filers are the least likely to be called in for a chat with the IRS. Small-business owners are at greatest risk. Win or lose, an IRS audit can be a traumatic event. The cost in terms of time, worry and the disruption of your life spent on the quest for paperwork can be high. Also, keep in mind that, even though the audit itself is not an automatic indication of guilt, if the IRS calls you in, it expects to come out of it with at least some additional money ... your money. Your goal should be to get it over with as quickly and painlessly as possible. Here are some general rules of thumb to help you survive and IRS audit.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Tax records
• A good tax advisor

1. Neatness and organization count Get your records in order. This creates less work for the auditor (which helps) and shows that you are well organized. Don't dump a shoe box full of receipts on the auditor's desk. That's just asking for trouble.
2. Go in prepared. Don't rely on the IRS to tell you what's wrong. While auditors are just trying to do their job, that job is to find money in your return. The audit notice will explain the points of inquiry. Go in knowing whether or not you believe the grounds are valid. Have a response and a strategy ready to present.
3. Don't be too helpful Provide only the information that was requested. Most IRS audits focus on specific items. If the auditor didn't request something, you are not required to bring it.
4. No need to go in alone Bring professional representation. This is not the time to pinch pennies. You have the legal right to be represented by your accountant or tax attorney, and you should take advantage of that opportunity. At the very least, even if you don't use an accountant to prepare your returns, get one's advice before going in. It could save you a lot.
5. Be nice. Watch your attitude Don't go in with a chip on your shoulder. This is not the time to voice your feelings about the unfairness of the tax system or the intelligence level of the people who work for the federal government. Don't give the auditor reason to want to dig for something. At the same time, don't be intimidated. Be cordial, friendly and cooperative, yet firm.
6. Don't feel forced to agree to anything Don't sign anything that you don't fully agree with or understand. Insist on time to review all documents and to discuss them with your attorney or accountant.
7. Look for a little give and take Negotiate. Never pay a penalty without at least attempting to have it set aside. Do the same with interest charges on any money you may owe.

Tips & Warnings

• Get a professional who knows the ropes to with you. Going it alone can cost you big.
• Bringing unrequested documents to an audit can open other areas of inquiry.
• Know when to shut up. Answer only the questions that are asked and provide no additional information.