Tax audits are always stressful. If you have been selected for an audit you have to go through it, there is no other option available. We all dread being notified by the IRS that they want to examine a previous year’s tax return. One of the best way to win against the IRS is to seek professional help. The more complex is your tax return, the more you will need someone with experience in tax matters and how to handle the IRS. However, if you decide to go into the IRS audit by yourself here are some tips on how to best handle the IRS audit.
You main objectives during the IRS audit are:
1. minimize the financial impact, and
2. prevent the IRS from investigating beyond the initial items selected for the audit.
The reason an IRS audit end in negative results is because people lose focus of the above objectives. Here are some tips that will help you minimize the potential damage:
1. Be cool – Remember that the auditor is not only examining your tax return, he/she is examining you too. Auditors have a stressful job and they are constantly battling angry people whom their tendency is to take their anger on them. Therefore, be the opposite and maintain your cool around the auditor. Be cordial, be friendly, be cooperative, and treat the auditors with respect.
Treat the auditors as human beings.
2. Know your opponent – Be friendly with your auditor, but do not lose focus that the auditor is not there to be your friend. They are trained to keep their eyes peeled for anything that “looks funny” or “does not make sense”. Also, auditors are trained to listen to everything you say. Therefore, be brief with your auditors.
3. Be precise in your responses – During an IRS audit people are nervous and they tend to talk too much. Anything you say or provide to them in addition to what they asked, can be used against you. I am not telling you to lie, just pay attention to what you are being asked and precisely provide the information being asked. The more you talk about other areas outside of the audit scope, the more likely the auditor will probe into those areas. Also, don’t provide the auditor with less than the information being requested or ignore their requests. Don’t think that the auditor will forget about the information requested. They won’t forget and it will raise suspicion about your character.
Resist the urge to volunteer information. Also, It’s ideal to provide no less, but no more than the IRS requests.
4. Don’t lie – Most of the times the auditors will ask questions they already know the answers. It is a simple test of character for them to know if you can be trusted. The rule here is to be honest without forgetting the tips above, do not ramble and don’t provide more information than necessary.
5. Don’t be intimidated – Most auditors are not tax gurus. Turnover for tax auditors is quite high. Therefore, many auditors are fairly young, just-out-of-school types who majored in something like English, history, or sociology. Most of the times you are not at such a disadvantage as you think.
6. Be organized – When you go to the IRS audit with organized files and the requested documents you will send a clear message to the auditor that you are prepared and that this audit will flow smoothly. If you are missing documents, you are allowed to reconstruct them.
The better your records the smoother your audit will flow.
7. Decline requests to extend the IRS’s deadline – if you are requested to extend the IRS examination, you can decline it. The request language used by the IRS may seem to indicate that you have no choice and most people do sign it without realizing that they have waived their statute of limitations usually restricting probes to the three years previous. Keep in mind that you are give a few months to prepare your tax returns, the IRS has three years to audit them. Declining to extend the deadline with the IRS won’t release you from an audit.
8. Don’t give original documents to an auditor – The IRS is notorious for losing documents. If the auditor lost one of your documents, that is not an excuse for you not have proper support. Only provide copies of the information being requested.
9. You have the right to appeal – If you are in disagreement with the results of the audit, start by calling the auditor or discussing it with him/her during the audit visit. The IRS auditor does not have the final decision. They issue an opinion about their findings. Avoid locking horns with the auditor about your disagreement, you can plead your case with several layers of people above your auditor. Finally, If this method fails and you still feel wronged, you can appeal or take your case to tax court.
10. Get professional help – Hiring a tax attorney or CPA takes the emotion out of the IRS audit. Remember that tax laws are not black and white, and an experienced tax lawyers and accountants will recognize when an issue isn’t. 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.