Receiving an audit notice from the Internal Revenue Service (IRS) can be a scary feeling. So many people see that letter and immediately start to panic. But rest assured, an audit is not something to fear, nor does it mean you’ll be facing heavy financial penalties. Here’s what you should do when you’re being audited by the IRS.
1. Do not panic! The first thing I tell my clients to do when they’re facing an audit is this: don’t lose your mind. While it may feel overwhelming to you, an audit is very common and can be easily worked through with the right professional help.
2. Contact a tax 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.
3. Don’t ignore the audit notice. You generally have 30 days to respond to the audit notice you receive in the mail. Whether you agree with the notice of audit or not, it’s important to respond in some fashion. Talk with your tax attorney about the best way to respond to the audit, or whether they will respond on your behalf.
4. Organize your documents. You will likely need several financial statements to prepare your audit response, and it’s best to gather those as soon as possible. These documents may include bank statements, previous tax returns, W-2s and 10-99 forms.
5. Prepare a response and know what you will negotiate. 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.
6. Appeal the decision if you disagree with it. 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.
Remember, do not panic if you’re faced with an IRS audit. While it can be stressful, an experienced attorney or tax professional 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 LLP. 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.