What to Do if You’re Audited by the IRS

It’s hard not to panic when you see a letter from the IRS in your mailbox. Are they out to get you? Planning to seize all your assets or, even worse, jail you for perceived tax evasion?

Relax: being audited doesn’t necessarily mean that you’ve done anything wrong. Perhaps the computer randomly selected you or, if you own a business, it was chosen as part of a program to “test” overall tax compliance in your industry. In some cases, taxpayers actually receive an additional refund after their audit is complete! So don’t panic. What you need to do is figure out what the auditor wants, get prepared, and be courteous and responsive at all times.

Should you get “the letter,” these are the steps you should follow to ensure a relatively smooth and stress-free experience.

Determine What the IRS Wants

Read the letter to pinpoint what part of your tax return is being audited. IRS auditors frequently have questions about a specific portion instead of the whole return. Review your return carefully to verify that everything is accurate, and then submit only the information that they are requesting. If you provide too much, you risk broadening the audit’s scope. It’s highly recommended that you speak to an experienced tax professional before making contact with the IRS.

Get Prepared

Once you know what the IRS wants to examine, put together the documentation that backs up your claims. If they are questioning the amount of car usage you wrote off as a business expense, pull out your mileage log, gas station receipts, and other evidence of business-related use and put it all in one place.

If you haven’t saved any supporting documentation, or the books and receipts have been damaged or accidentally destroyed, the IRS will permit certain methods of estimating expenses. The best way of proving your claim or claims is to obtain third party verification of the claim. For example, if you made donations in 2013 and lost the receipt, contact the charities in question for replacement documentation.

Generally, the IRS has three years (seven years in certain circumstances) to audit a return, so do your best to preserve records for expenses incurred during that time frame.

Don’t Ignore the Matter

The worst thing you can do is panic and fail to take action. If you don’t respond to the IRS letter by their deadline, it will make the situation worse. Speak to a tax professional as soon as possible to develop a plan of action.

If you’re facing an IRS audit or if you have other tax-related questions, I’d be glad to speak with you. Please contact me today to learn more!

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Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.