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So, you thought you did everything right, but you’ve received that terrifying letter from the IRS saying, “You’ve been selected for an audit.” It’s frustrating, but it’s best to take action steps right away, including a call to your tax advisor.
How are you selected? The IRS has a confidential computerized scoring system that determines the “norm” for income and deductions. If your individual or business tax return falls outside the norm, the likelihood that you’ll be audited increases. Experience shows that the amount of deductions relative to personal income and the ratio of business income compared to claimed profits seem to be the factors that most often cause a return to be automatically selected for an audit.
What do you do first? Take a breath and get organized. It’s about the law, not emotions.
Consult with your tax advisor before responding to the IRS so you will be better prepared for the kinds of questions you may be asked and you'll know your rights. For example, your CPA can work directly with the IRS on your behalf on a professional basis speaking the same language as the IRS avoiding possible emotional responses that can cause disruptions.
It's important to maintain a positive attitude as you compile all the requested records.
Tips to consider:
- Develop a game plan with your tax advisor before submitting your response.
- Respond in a timely and friendly manner.
- Give the IRS agent only the information and documents that are being requested.
- Take nothing in the room you wouldn't show the auditor.
- Never give the IRS the only copy you have of a document and don’t leave your original documents with an auditor.
- Let your tax advisor review documents before you sign them and make certain you fully understand what you’re signing.
- You have the right to request copies of any documents you sign.
- When given a bill, you may agree to pay it or request a hearing with an appeals officer.
- You have the right to appeal the audit’s findings.
Types of Audits: A Correspondence Audit is a letter from the IRS requesting copies of receipts or documents to prove your deductions. An Office Audit is submitted by letter, too, and requests specific documents be physically brought by you or your representative to a local IRS office.
A Field Audit is a request made by phone to conduct an audit at your place of business. It is crucial that you have representation for this kind of audit.
A Taxpayer Compliance Measurement Program or TCMP Audit involves a total audit in which every part of the return must be substantiated with documentation. This is the most intensive and expensive audit.
The IRS reports that nearly 4 percent of filed tax returns are audited. That is nearly double the rate compared to previous years.
Honestly, because so many laws are subject to interpretation, any tax return can be targeted by the IRS. Bottom line: if you’re audited, communication is key to successfully navigating through tough questions and managing responses favorably.
At McRuer CPAs, we’re here to help should you need us. 816.741.7882.
