You receive the letter many dread, the Internal Revenue Service (IRS) has requested to audit your tax return. It could be for many different reasons. Maybe your income on your tax return did not match the amount reported to the IRS, or your expenses seem to be a bit questionable. If so, you could be the lucky winner of a full IRS audit. No matter what reason the IRS decides to come knocking, one thing is certain—you must be prepared.
As a former Internal Revenue Service agent, I have had the opportunity to participate in a host of audits, and time and time again, the key to surviving these unwanted ordeals is to make certain you understand your rights and responsibilities.
You should first get an understanding of what items are being audited and review the examiner’s document request. This request will outline items needed to substantiate the amount claimed on the tax return. Remember, during a civil tax audit, the burden of proof is on you.
Gather documents to substantiate questionable items on the tax return. If you do not have any records, there is still hope! Remember, there are other methods of substantiating items on the tax return. For example, if you are a home health nurse and you previously claimed vehicle expenses, consider obtaining patient records for the appropriate taxable year and estimate mileage based on these visits. Examiners are allowed to accept various types of evidence to substantiate items, including third-party testimony, affidavits, and other types of verification.
If you are uncomfortable with the mere mention of the letters I-R-S, it may be a good idea to obtain an agent to work on your behalf. This may include a certified public accountant (CPA), an enrolled agent, or even a tax attorney. Once you inform the IRS examiner you wish to obtain representation and the IRS has received your completed Form 2848, Power of Attorney, the IRS must make all future contact with the representative only, thus alleviating you from speaking to the IRS.
Do Not Settle for Defeat
If you are not in agreement with the examiner’s position, you do have rights. First, you should raise concerns with the examiner. Most often, the examiner will be willing to compromise on certain issues, if you are willing to sign an agreed report. However, if you are unable to come to an agreement with the examiner, you can request a meeting with the examiner’s manager or request that the case is heard by appeals.
Remember, the ultimate goal of both the examining group and appeals is to close the case without a subsequent trial. Therefore, if you stay persistent, chances are you will be able to obtain favorable results.