IRS Audit Tips: Advice on How to Beat & Survive a Tax Audit
If you are selected for an audit you have no choice but to follow through with it. Two things you should strive for in the audit are to minimize the financial impact and to prevent the IRS from investigating beyond the initial items selected for audit. There are times when you may get a refund or owe nothing more after the audit, but chances are you will owe money. It is important to know how to go into an audit understanding how to prevent the IRS from looking at additional information and how to keep the financial impact of the audit to a minimum. Below are some IRS audit tips to make it through the audit and come out with the best outcome possible.
What to Know About Tax Auditors
Before going into your audit you need to keep a few things in mind about the auditor/auditors you will encounter. Auditors have a very tough/stressful job because many people are angry and resent the fact that they are being audited and will take it out on them. Try to keep your cool around the auditor and realize that the auditor is just doing their job and they want the audit to flow smoothly and calmly just like you. Another important thing to keep in mind is that auditors are trained to keep their eye out for things that just don’t seem right, which means anything you say or show them in addition to what was asked for, can be used against you. Being polite and friendly can go a long way, but just be aware that the auditor is examining you and your return.
Advice to Follow During a Tax Audit
- Be as brief as you can: Audits are stressful and when people are nervous, they tend to talk too much. Auditors are trained to listen to everything you say. Saying too much can lead to the auditor looking at other tax years that weren’t covered with the initial audit. When possible, keep your answers to the following: Yes, No, I don’t know, I will have to research that, what exact documents do you need? What is the reason for that? Talking too much is a very common mistake that costs people big money during audits.
- Do not lie or make misleading statements: The IRS may ask questions they already know the answers to in order to see how much they can trust you. It is best to be completely honest, but do not ramble and say anything more than is required.
- Don’t offer other years' tax information: If you show the auditor tax returns from other years and they see something that they don’t agree with, they have the right to make adjustments on that tax year even though it wasn’t covered with the initial audit notice. It is important to only bring in the documents that are stated in the IRS notice in order to limit the scope of the tax audit.
- Have all required support: Going into the audit with all the required documents and having it organized can impress the auditor and make them realize that you are willing to cooperate and make things flow smoothly. If you are missing documents, you are allowed to reconstruct them. The auditor is required to consider the newly created documents if they seem reasonable. Courts have recognized that taxpayers can’t be expected to keep perfect records and sometimes they are willing to accept verbal explanations, but the better your records the smoother your audit will flow.
- Be yourself during an audit: It isn’t only just your tax return under review, you are being reviewed as well by the auditor. The auditor will observe your actions and if something doesn’t seem right it may cause more problems for you. Auditors try to get a sense if you are hiding something, or if your mannerisms are odd when certain items are discussed. Be aware, especially early on in the audit process that the auditor is looking for these types of things, so try to avoid coming off as if you having something to hide.
- Don’t give original documents to an auditor: The IRS is known for losing documents. If the auditor wants a copy of one of your original documents, be sure to make a copy and keep the original yourself. Because the IRS lost one of your documents isn’t an excuse for not having proper support.
- Understand how the IRS feels about substantial compliance: There may be times where you will not be able to come up with all of the required documentation to back up some of your deductions. If you can show the IRS that you have enough proof that you did follow IRS tax laws, but your documentation is lacking, they may allow the deduction to be taken. Files do get lost, few people have perfect records and the IRS does understand this.
- Appeal the audit if you don’t agree: It is your right to appeal an audit examination report. The best way to start is by calling the auditor that you don’t agree with and make your argument. If you are having trouble making your point then you can choose to meet with their manager, appeal with the IRS, or go to tax court.
- Consider hiring a tax professional: A tax professional can represent you before the IRS. A qualified tax professional is well versed in audits and is well aware of IRS tactics. Chances are, a tax professional can help ensure a better outcome of the audit.
Tips for Dealing with a Tough Auditor
Sometimes auditors are tough and they think they can walk all over you. Here are some tips on how to deal with an auditor that is not acting appropriately.
- Delay the audit: Auditors do not like delays because many times their performance is based on cases that they close. If they know you are going to delay them they can possibly lighten up a bit to allow the audit to move forward on a better tone. To delay, you can ask for a recess and pick it back up at a later time. If they won’t allow a recess you can then say you want to talk with a tax professional before going any further with the audit. If you talk about wanting a professional, the auditor must legally grant your request (You don’t actually need to get one, but the request will end the audit for the current session).
- Request a New Auditor: If you feel like you are being treated unfairly or the auditor is not being respectful to you, request a new one. In order to request a new auditor, you will need to speak with their manager. When speaking with the manager you should tell them that you feel you are not being treated with respect and you would like to work with someone else. Most likely, your request will not be granted, but the fact that you told the manager how you were being treated and that manager likely talked to your auditor, you may see the tone of the audit change.
- Stand up to the auditor: If you are sensing that your auditor thinks that you will just accept whatever they find then it is a good idea to start questioning them. If they start getting the feeling that you will question everything they do and they will need to provide an explanation, they may begin to think twice about certain things. It is fine to ask questions during an audit, just try to do it in a polite manner. Be sure to let them know that it isn’t going to be easy for them to get their way on everything.
- Consider recording the audit: You are allowed to record your audit with the IRS as long as you let them know in writing ten days before. When the auditor knows all proceedings are being recorded, this can limit abuse and can create a more professional environment.
Audits can almost be seen as a game. There are clear strategies to being successful in audits but there are no clear-cut formulas to getting through them. If you had two identical tax returns with the same backup information, you can have two significantly different outcomes of the audit depending upon how it is played. Keeping in mind these tips can help ensure a better outcome.
If you are looking for a licensed tax professional to help with a tax audit, review this list of tax professionals who have experience resolving IRS audits. Alternatively, start your own search below and click "audit or examination" under the filter on the search page called "IRS Problem Experience."