I receive so many panicked calls from individuals and San Francisco business owners who receive a notice of audit from the Internal Revenue Service (IRS). The reaction of fear is understandable, as nobody wants to deal with their tax records being scrutinized and possibly owing money to the IRS. However, it’s important to keep in mind that an audit is a very common occurrence. As long as you follow a few basic guidelines, you and your business will likely be fine. As you navigate these waters, here are four things not to do if you’re facing an audit.
1. First and foremost, do NOT panic! Most audits are fairly straightforward and procedural. The auditor assigned to your case is likely there to make sure you are not making mistakes on your tax filings. They are not there to punish you. To ensure you’re staying calm, enlist the help of an experienced tax attorney to help you through the audit process.
2. Do NOT ignore the audit notice. You will receive an audit notice in the mail and you generally have 30 days to respond. Whether you agree with the notice of audit or not, it’s important to respond in some fashion. If you choose not to respond to the audit notice, the IRS may decide to take matters into their own hands. This can include making adjustments to your income and expenses and assess you with additional taxes, as well as penalties and interest.
3. Do NOT destroy documents or give the auditor more than they ask. It’s tempting to think you should destroy or hide documents that, you believe, may be problematic. Do not do that! This does not mean you have to give the IRS every piece of paper you have. In fact, you don’t want to give the auditor more than they request. But do not try to hide things because you’re worried about what the documents may mean for your audit. Additionally, only give your auditor copies and never original documents.
4. Do NOT avoid paying what you owe. Not paying your assessed fees and penalties will only make your situation worse. In fact, the IRS could then put a lien on your house or other property if you do not pay what you owe. If you do not have the money, you can always apply for a payment plan or installment agreement. Generally, the IRS will allow you to set up a streamlined payment plan with no lien filed if you owe less than $50,000, show you can’t pay the amount you owe now, and can pay off the taxes owed in three years or less.
An audit can be scary and nobody wants to deal with the IRS. But whatever you do, always be straightforward and follow the guidelines. Do not try to hide information or ignore the audit notice. Always consult with an experienced tax attorney who will help you navigate these frightening waters.
Allison Soares is a partner and tax attorney at Vanst Law. Before starting her own practice, Soares was a partner at a tax law firm where she honed her skills handling a wide variety of tax and employment-related cases. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
