*The following article was updated in March 2024*
There are few things that provoke such fear in a person than receiving an audit notice from the Internal Revenue Service (IRS). While getting audited can be a scary prospect, it doesn’t mean you necessarily have to face major financial penalties. That being said, if you are facing an IRS audit, it’s important to take the right steps in a timely manner. Here is what you should do if you find you’re being audited.
Don’t 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.
Prepare a response to the IRS. If your audit is through the mail, make sure to complete the questionnaire you received and submit any supporting documents with it. These may include previous tax returns, W-2 and 10-99 forms.
Be helpful, but don’t give away the house. It’s important to give the IRS what they ask for, provide the requested documentation, and answer their questions thoroughly. But do not give the auditors any more information than they request. This is often how people end up making mistakes. 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.
Talk to a professional. If you are unsure how to answer any of the questions, make sure to consult with a tax attorney or experienced professional before you return it to the IRS.
Appeal the decision if you disagree with it. After the IRS receives your audit responses, they will review and send you a decision. That will tell you if you owe taxes and penalties. If you disagree with the outcome of the IRS audit, you have the right to appeal. You can contact the auditor directly, request an alternative dispute resolution (ADR), or file a request with the Office of Appeals. You may also file legal action with the Tax Court.
Apply for a payment plan. If you do agree with the audit response and you owe money to the IRS, you have the option of applying to the IRS for a payment plan, or an 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.
Being audited by the IRS is scary. 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.
