Accounting Information

By David Powelson

Receiving a Notice of Audit from the IRS is just the beginning of a stressful, worrisome, and possibly even fearful, situation. While you may feel like panicking, that's the last thing you should do! So, take a deep breath and read on. You can survive your IRS audit by following these tips for before, during, and after the audit.

Before the Audit

Take some time before the audit to prepare, educate yourself, and get your records ready. These hints will help you prepare.

1. The first step begins far before you know you'll be audited. Be truthful in your tax return, keep accurate records, have receipts to back them up, and keep three years of records on file.

2. When you receive the notice of audit, take some time to refresh your memory by reviewing the return in question. What's the IRS questioning? Be sure you understand issues.

3. Educate yourself on the items listed on the audit, as well as your rights in an audit. The IRS has plenty of free publications on their Web site.

4. If you believe you are not able to handle the audit, get help. CPA's, tax attorneys, and other tax professionals have the knowledge and the experience to get you through it.

5. If the examination is not scheduled with enough ample time for you to prepare, you can have it rescheduled. Postponing the audit will not hurt you, and it could work to your benefit.

6. Most audits are looking at a specific area of the tax return, like charitable contributions, or auto expenses. Have all of the records pulled for the area that the agent is looking for.

7. Make the decision to record the audit so you can alert the IRS to your decision. If you record the audit, so can they, but this will decrease the chance of the rules being changed in the middle of your audit.

During the Audit

During the audit, you will need to convince the IRS examiner that your return was correct. These hints will help you prepare.

1. Be friendly and courteous to the agent. If the audit is in your place of business, offer him or her coffee or water, and a clear, quiet place to work. Employees should be forewarned to not chit chat about the business and/or the audit with the agent.

2. When the IRS agent asks for something, have it ready. The best way to organize expenses is to have them listed on a ledger sheet, in chronological order. When the agent wants a receipt, those should be readily available.

3. Never volunteer information. Remain focused on the items listed on your notice of audit, that's it. Also, ONLY give the agent exactly what he asks for. If you are unsure of the request, make the agent clarify what they want. This is, perhaps, the most important advice in this article.

4. If the agent asks you a question about something that is not on your notice of audit, do not answer. Politely state, "I'm sorry; my accountant only wants me to discuss the matters that are specifically mentioned on the IRS Notice of Audit."

5. If, at any time during the audit, you feel the agent is treating you unprofessionally, ask to talk with the agent's supervisor.

6. Ask for a timeout to contact your accountant or attorney if the audit begins to overwhelm you or it isn't going well. If tax fraud is mentioned during an audit, do not try to handle it yourself.

After the Audit

If anything has left you feeling uneasy, have your tax professional go over the recording you made. Also, when the results come, if you are unhappy with them, take some time to speak with the auditor. You may be able to reach a compromise. If not, consider appealing the result.

Remember, too, that the IRS, in most cases, has to complete any audit within three years of the date your return was filed. So depending on the severity of the audit, this may work to your advantage.

Finally, if you have been truthful and have all the records to back your return up, you have no reason to be scared of being audited. The IRS agents really aren't monsters! They are people too, who go home to their families every night. They are professionals who are doing their job.