What to do if You're Audited

The Internal Revenue Service has increased the number of tax returns that are selected for audit. Even so, only about one percent of Americans receive audits yearly. That minimizes, but does not completely rule out, your chances of being audited.

But what if, despite your best efforts, you receive notification that your tax return will be audited? What do you do? Well, after you take a few deep breaths, you should endeavor to realize that it’s not the end of the world. There are definite steps which you can take to prepare yourself and your tax return for the IRS’s scrutiny. Here are a few tips to help you:

  • FIRST of all, read IRS Publication 1, which explains your rights under the Taxpayers' Bill of Rights, prior to your audit.
  • Do your best to delay the audit. Request more time whenever you need it to get your records in order.
  • You are allowed to reconstruct any missing documents or receipts.
  • Research any tax legal issues by using the free IRS publications and commercial tax guides. If you’re still unsure about the tax law or how to present your documents, consult a tax professional before the audit.
  • Don’t let the IRS perform the audit at your business or home. They prefer this, especially where home-based businesses are concerned. Instead, go to the IRS office or have your tax professional represent you.
  • You have the right to schedule the audit at a time and place that is convenient for you. Use this right to sufficiently prepare yourself and avoid being caught off-guard.
  • You also have the right to limit the scope of the audit to avoid the time and trouble of discussing issues which are not relevant to your tax liability.
  • Don't talk any more than you have to during the audit; answer questions and then be quiet. Don’t give the auditor any more information than he or she is entitled to.
  • Don't bring any documents that were not specifically requested, or do not pertain to the year under audit. Don't give copies of other years' tax returns to the auditor; don’t lie about anything, but don’t provide more information than is absolutely required.
  • If you feel that the audit isn’t going well, you are within your rights to demand a recess to consult with your tax professional.
  • If you feel that you’re being treated badly or unfairly, ask to speak to the auditor’s manager.
  • Don't try to haggle over the amount of the taxes that they say you owe; instead, attempt to negotiate the tax issues.
  • If the subject of tax fraud arises, don't try to handle it yourself. Get the help of a tax professional.
  • When you receive the audit report, call the auditor if you don't understand or agree with it. Meet with the auditor or manager to try to reach a compromise.
  • If you can't reach a compromise and you cannot agree with the results of the report, you may file an appeal with the Tax Court.

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