How to Handle an IRS Audit

If you receive a dreaded audit notice from the IRS, remember that the analysis is a professional procedure that may be handled simply by giving the necessary papers. Knowing what to expect will help you fix issues quickly, handle numerical differences, communicate properly with IRS agents, and complete the process with little stress.

Regardless of why the IRS chose you, learning that you would be subjected to an IRS audit is shocking. Even if you have no reason to believe you did anything illegal, you cannot avoid the anxiety that comes with an IRS audit notification. But whatever you do, do not panic! Here’s what to expect and how to manage an IRS audit on your tax return. We can reduce your tension a notch or two.

What is an IRS Audit? 

The phrase “audit” can make anyone sweat, but a basic explanation of what it is and how the (IRS) works may put you at ease. Some audits are minor, while others can be somewhat demanding. Once you’ve determined the type of tax audit, you’ll know—or at least have a better understanding—what’s involved.  Adjustment letters merely notify taxpayers that they owe more money or that their refund amount has changed, usually due to a miscalculation. 

A correspondence audit is a little more complicated. It notifies the taxpayer that extra documentation is required to complete their return. The IRS may request receipts, bills, employment paperwork, canceled checks, legal papers, loan agreements, shareholder reports, or even ticket stubs. People are most afraid of examination audits, but less than 1% of Americans are audited in any one tax year. 

Why the IRS May Contact You

Taxpayers should recognize that an audit does not imply suspicion of illegal behavior. Tax returns are complex papers including financial information that must be reviewed to ensure correctness.The auditing procedure, also known as an examination, does not imply that you made an intentional error. The IRS contacts people for various reasons.

According to the IRS, taxpayers are chosen using a “random selection and computer screening” procedure based on statistical formulas. The IRS analyzes tax returns to “norms” of similar returns. If your return does not adhere to the “norms,” you may be chosen for an audit.

How to prepare for an audit

You may have a few weeks to prepare. If the meeting is scheduled at an inconvenient time, or you discover that you will need additional time to gather your records, contact the IRS as soon as possible and request that the audit be rescheduled.

The written notice will identify issues on your return being questioned – often broad categories such as employee business expenses or casualty losses – and detail the types of records you’ll need to resolve the issue. Office audits are usually restricted to two or three issues, so you will only be required to bring in some of your records.

• Understand the scope of the tax audit.

Mail audits are confined to the items listed on your audit letter from the IRS. Office and field audits necessitate more significant effort. You’ll need to gather the information/documents requested by the IRS and be prepared to answer detailed questions about your financial situation and activities. Regarding office and field audits, you should hire a tax professional to represent you and advocate your tax return positions before the IRS if you are familiar with IRS procedures.

• Delay the audit.

Postponing the audit frequently works in your favor. Request more time anytime you need it, whether to organize your records or for other reasons. Unless the IRS discovers tax fraud or significant underreporting of income, the audit must be completed within three years of the tax return’s filing.

• Prepare your responses to IRS questions.

Prepare a comprehensive response to the items raised by the IRS in the letter/document you received. Prepare for the meeting with the IRS agent when conducting office and field audits. Gather all the information the IRS asks for and prepare to deliver it to them. Prepare for any IRS questions, such as those about unexplained bank deposits or additional income. The IRS agent will also inquire about your employment, family, and other enterprises. You must be prepared to offer an account of your entire year’s actions.

• Don’t offer other years’ returns.

Do not send the auditor copies of previous years’ tax returns; if she finds something she does not like, she will also make adjustments in those years. Do not bring any documents to an audit that do not pertain to the year under audit or were not specifically required by the audit notification.

• Consult a tax expert.

If tax fraud arises during an audit, do not attempt to handle it yourself. You might request a break to confer with a tax professional at that moment or whenever an audit is not going well. In addition, if you believe the auditor is mistreating you, you may request to talk with the auditor’s manager