Every taxpayer is afraid of IRS tax audits and hopes they won’t happen to them. If the IRS audits your tax return, they will carefully review it to ascertain whether you reported all of your income. It will also check that you have only claimed credits and deductions that were allowed by law.
Receiving an IRS audit can be scary, but it is a process that can be handled with the right planning and a solid plan. So, read the full article to get the step-by-step guide that you can follow during the time of an IRS audit.
“If the IRS selected your return for audit, it doesn’t automatically mean something is wrong.” – IRS website.
Also Read
How to Avoid an IRS Audit: Tips to Keep Your Tax Return Low-Risk
Contents
What to Expect When Going Through an IRS Audit?
Knowing the IRS audit process is important if you are going to survive it. Here’s a rundown on what you need to know:
Types of Audits
- Correspondence Audit: Performed by mail, this audit targets individual items in your return and typically involves sending over supporting documents.
- Office Audit: Involves a meeting in person at a local IRS office to present documentation and field questions. Office audits tend to be more thorough.
- Field Audit: The most extensive variety, whereby an IRS representative comes to your home, business, or accountant’s office to examine your records face-to-face.
Most Important Steps in Preparing for an IRS Audit
Preparation is the best way to allow your audit to go on without the need for unnecessary complications. Prepare yourself using these steps:
1. Don’t Delay
IRS requests frequently have tight response deadlines, so it’s important to begin preparing well in advance. Don’t wait until the last moment, so you have enough time to get everything sorted out.
2. Use a Reliable Representative
If you have a CPA, sit down with them before your first contact with the IRS. Address strategies, expectations, and answer questions. Depending on the level of the audit, it may be wise to have your CPA accompany you during the audit.
3. Obtain Required Documents
Obtain all of the requested documents, such as tax returns, receipts, financial records, and invoices. Take only the documents that are particularly mentioned in the IRS notice.
Eight Documents That You Need to Provide in front of the IRS:
A copy of your IRS audit notice, including any Information Document Requests (Forms 4564, which are annexed to the notice)
- Any documentation and information that the IRS is demanding;
- A copy of your IRS audit notice, comprising any Information Document Requests (Forms 4564, which are attached to the notice)
- Copies of your two years’ returns before the return under audit
- A copy of the return under audit
- A copy of your most recent return, if it isn’t the return under audit.
- A copy of any supporting documents you gave to your tax preparer;
- Any records demonstrating the findings of any previous audits
- A copy of any additional IRS notices or letters you received for the tax year being reviewed
“Read the letter and follow the instructions. Don’t send original documents – send copies.” — Taxpayer Advocate Service, Audits by Mail.
4. Check Your Tax Filings
Carefully review your tax return to determine if there are any discrepancies or errors. If there is an error, be prepared to discuss it or present supporting documentation.
5. Know What the IRS Wants
Determine the specific parts of your return that the IRS is questioning. Prepare specifically for these issues, concentrating on the details noted in the audit notice.
6. Know Your Rights
Before your audit, review IRS Publication 1 (Taxpayer’s Bill of Rights) to understand your rights during the process.
“Examiners have the ongoing responsibility to ensure that all taxpayer rights are protected and observed throughout the audit, whether these rights are mandated by statute or provided as a matter of policy.” — Heather J. Yocum, IRS, via Internal Revenue Manual 4.10.1
Snapshot: Step-by-Step Guide for Audit Preparation
| Step | Action |
| Notification | Read the IRS notice carefully |
| Collect Documents | Gather all relevant documents such as tax returns, receipts, financial records, bank statements, and invoices. |
| Hire a professional | Consider seeking expert help, like a CPA. |
| Respond to the IRS | Only provide copies of the requested documentation and information |
| Know your rights | understand your rights during the process |
| Review findings | After the audit, review the IRS findings |
Best Practices for Handling an IRS Audit
Keep these tips in mind to navigate the audit effectively:
- Be Thoroughly Prepared: Bring only the requested documents, but ensure they fully support the items on your return.
- Stay Professional: Be courteous and expect the same from the IRS agent.
- Do Not Volunteer Information: Only respond to the question asked. If you have a representative, allow them to answer for you.
- Keep Records: Keep extensive records of materials submitted and questions posed.
- Handle Issues Immediately: If the auditor sends an examination report you don’t comprehend or concur with, contact them with your issues.
FAQs
For How Much Longer Can an Audit Last?
Audits can last from weeks to months based on complexity. Correspondence audits will take weeks to complete, but field audits might last months.
What is the role of an IRS agent?
Their mission is to confirm the validity of your tax return.
What is the role of a taxpayer during an IRS audit?
You will be required to give documents, respond to questions, and resolve discrepancies. Professional representation may simplify the process.
Does the IRS check receipts during a tax audit?
Yes, they will check receipts when doing an audit to ensure a receipt is present and to ensure it’s not a fraudulent receipt. If they are in doubt about a particular expense, they will want to know that the expense did take place. Be sure to have receipts available at the interview.
How long later than being audited will I receive my refund?
Generally, it will take about 6 to 8 weeks for a refund check after having been audited.