Tuesday, May 15, 2012

7 Ways to Survive a Tax Audit

Once risk of filing taxes on your own is getting audited.  If you get a letter from the IRS notifying you that you will be audited don’t panic.  Stay calm.  All audits are not bad and may not result in you owing the IRS money.   If you prepare your taxes yourself with tax preparation software like Tax Cut or Turbo Tax the software provides audit checks on your return before sending them to the IRS and alerts you about possible items that could trigger an audit.  If you go to a tax preparation company find out what the process is if a customer is audited.  Here are 7 tips to help you through an IRS audit.

1.     Notice.  If you receive a notice in the mail from the IRS stating that you will be audited read the notice carefully to fully understand what is required.  An audit can be for one year or for multiple years.  An audit can simply be resolved by sending documentation via postal mail or may require a meeting with an IRS agent. 
2.     Act Promptly.  You must act promptly when you receive an audit notice to ensure your chances of the audit going smoothly.  Gather all of your financial statements including canceled checks, bank statements, 401K statements, charity donations, credit card statements, monthly debt statements, taxes for the past 3 years, W-2’s/W-4’s, previous tax refund statements, your 1098 statements if you are a homeowner, etc.  If you do not have a copy of past tax returns complete a Form 4506 to request an official copy. 
3.     Document.  Make a list of all documents that you currently have in your possession that are required in the audit letter.  Make a list of all documents that you don’t have and the status of obtaining those documents, i.e. you requested a copy with an estimated receipt date, you will request a copy or you are unable to get a copy.
4.     Professional Assistance.  Contact a tax accountant or tax lawyer to get advice on how to prepare for the tax audit and how they can help you successfully get through the audit including fees, services provided, years of experience, worse cast scenario, etc.
5.     Response.  If you are required to respond by mail, work with a tax lawyer or tax accountant to ensure you have all the required documentation.  Send copies of all required documentation and responses to any questions via certified mail and return receipt.  If you are required to respond in person, you can attend the meeting with your tax lawyer or tax accountant or they can represent you on your behalf.  I recommend you attend the meeting with your tax lawyer or tax accountant to ensure you fully understand the information provided and to minimize chances of misunderstanding the information presented.
6.     Resolution.  After the audit the IRS may require you to pay additional money or you may receive a refund.  If you have to pay work with your tax lawyer or tax accountant to setup a payment plan.
7.     Dispute.  If you are not happy with the findings of the audit, you can appeal the findings to the IRS agent’s supervisor or the IRS Appeal Division.  You also have the option of taking your case to your state tax clinic or filing a petition with the U.S. Tax Court.


Clemencia said...

Keep your records in a safe place. This includes receipts, canceled checks, and other documents that support income or deductions that you can use to claim your tax return. Be sure to store them in an accessible place so that you wouldn’t have trouble retrieving them when needed.

- Clemencia Summers -

Parris Moretti said...

“Document”-- Is one thing that you really need when it comes to your tax audit. It’s vital because this will show if everything is accurate and this will help you determine if you somewhat missed any of the requirements. Documenting everything, from the smallest receipt to the biggest paycheck, can only serve you for the better. Should there be any inconsistencies with the IRS’ records and yours, at least it’s an honest mistake on your part and not a criminal investigation.

Alana Gorecki said...

I totally agree with you. When someone receives a letter from the IRS, he/she shouldn't panic. All you have to do is follow the procedures, and if there is any error or inconsistency with your tax contributions, consult a professional on how you can solve the problem.