I Got Hit with an IRS Audit. What Should I Do?
*The following article was updated in March 2024*
Have you received a notice from the Internal Revenue Service (IRS) stating that you’re being audited? You’re not alone. Many California taxpayers go through the IRS audit process at some point.
The first thing to understand is how the IRS selects individuals or businesses for audits. They are both random and selective. Often times, the computer system will choose your name for a random audit. But most of the time, the IRS selects tax returns to audit because there’s an anomaly, mistake or something out of the ordinary about the return.
If you are being audited, you will receive a notice by mail on official IRS letterhead. You will never receive a call from the IRS. If you do, know that it’s a scam. The letter will tell you which tax return year is being audited and whether you will be audited by mail, through an in-person interview. The in-person interview can be an office interview, which takes place at a local IRS field office. Or it can be a field audit, which means it takes place in your home or business. Generally, the field audit is the most extensive, while the mail/paper audit is the most common.
Whether you’re receiving a mail or in-person audit, here are the steps you should take if you’re faced with an IRS audit.
1. Get organized and gather documents. In the letter you receive, the IRS will tell you what documents it’s requesting. But it’s a good idea to gather the following and have them ready: copies of past tax returns, mortgage statements, receipts, retirement and brokerage account statements, pay stubs, W-2s, 1099s.
2. Make copies and keep originals. Never give the IRS (or anyone for that matter) original copies of your tax materials. Always make copies and keep the originals with yourself.
3. Respond to the audit in a timely manner. While the idea of facing an audit is scary and you may have an inclination to avoid it, it’s best to respond to the IRS in a timely manner. Procrastinating can only make your situation worse and it may result in more penalties owed.
4. Talk to a professional. Do not try to take on an IRS audit by yourself. Talk to a tax professional or experienced tax attorney. These individuals are skilled in dealing with the IRS and can help you chart the best course of action for your audit situation.
5. Do not give the IRS more information than needed. You may be inclined to be helpful and volunteer information to the IRS. I urge you not to do that. The best thing to do is answer their questions succinctly and to the point. Do not give them any more than what they’re asking. You may want to be helpful, but remember, the IRS is not interested in helping you; they are auditing you because they believe they are owed back taxes or penalties from you.
6. Appeal if you do not like the result. Once the audit is finalized, you have the right to an appeal if you are not satisfied with the result. Additionally, if you do end up owing the IRS back taxes and penalties as a result of the audit, you can always apply for a payment plan.
Being audited by the IRS is a nerve-racking prospect. Do not try to navigate an IRS audit on your own. Talk to an experienced attorney or tax professional who will help remedy the situation so that you, the taxpayer or business owner, is protected and receives the best possible outcome.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
photo credit: eric1513 via Canva
