Things to Know When Being Audited by the IRS

Being audited by the IRS can feel stressful, but understanding the process and knowing your rights can help you navigate it smoothly.

Here are some important things to keep in mind if you are selected for an IRS audit:

1. Why You’re Being Audited
The IRS may select your return for audit based on several factors, including random selection, document discrepancies, or red flags like unusually high deductions. Being audited doesn’t automatically mean you’ve done something wrong; it could simply be a matter of the IRS verifying information on your return.

2. Types of Audits
There are three main types of IRS audits:

• Correspondence Audit: The IRS requests additional information or clarification through mail.
  
• Office Audit: You may be asked to visit an IRS office to provide documents and clarify issues in person.
  
• Field Audit: The IRS sends an agent to your home or place of business to review your records.

3. Gather Documentation
The key to a successful audit is having accurate records. Gather all necessary documents, such as W-2s, 1099s, receipts for deductions, and any other relevant paperwork that supports the figures on your tax return. The IRS typically asks for specific documentation, so ensure everything is well-organized and complete.

4. Know Your Rights
You have rights during an IRS audit. You can:
Request an explanation of the audit process.
Seek representation by a tax professional, such as a CPA or tax attorney.
Appeal the auditor’s findings if you disagree with the outcome.

5. Respond Promptly
Timely responses to any IRS communications are critical. Ignoring an audit notice can lead to penalties, interest, or even enforcement actions. Make sure you meet any deadlines for providing documentation or scheduling meetings.

6. Stay Professional and Cooperative
Although audits can feel intrusive, maintaining a professional and cooperative attitude is important. Auditors are more likely to work with you if you are organized, respectful, and transparent. If you’re unsure about certain aspects of the audit, don’t hesitate to ask questions.

7. Penalties and Interest
If the audit finds errors or discrepancies, you may owe additional taxes, penalties, or interest. Penalties can vary depending on the issue, such as underreported income or negligence. It’s important to resolve any outstanding issues as soon as possible to avoid additional costs.

8. Appealing the Results
If you disagree with the results of your audit, you have the right to appeal. You can request a meeting with the IRS Appeals Office or take the matter to Tax Court if necessary. Before appealing, ensure that you have a solid understanding of the issues at hand and consider consulting a tax professional for guidance.

9. Audit Red Flags
Certain actions can raise the likelihood of an audit, such as large charitable donations, home office deductions, excessive business losses, or high income. Ensuring that your deductions and claims are legitimate and well-documented is the best defense against potential audits.

10. Prevention for the Future
While there’s no guaranteed way to avoid an audit, filing accurate and complete tax returns each year will reduce your chances. Keep thorough records, double-check your deductions and income reports, and consider using tax preparation software or hiring a professional to help with your returns.
An IRS audit doesn’t have to be overwhelming. By knowing your rights, staying organized, and responding promptly, you can handle the process effectively.