It’s another normal day at the office, until you receive a letter from the IRS. You’re being audited. What do you do now? The first thing you should do is call your tax advisor! While you might be up to navigating an audit on your own, there are many reasons why utilizing a professional’s help will make or break the outcome of your audit. Here’s why:
IRS auditors do this for a living — you don’t.
Seasoned IRS agents have seen your situation many times and know the rules better than you. On top of that, they are under no obligation to teach you the rules. Just like a defendant needs the help of a lawyer in court, you need someone in your corner that knows your rights and understands the correct tax code to apply in correspondence with the IRS.
Insufficient records will cost you.
When selected for an audit, the IRS will typically make a written request for specific documents they want to see. The list may include receipts, bills, legal documents, loan agreements and other records. If you are missing something from the list, that’s when things get tricky. It may be possible to reconstruct some of your records, but generally the IRS wants your records to be contemporaneous. Your tax advisor can help you gather the information necessary to meet IRS standards, and avoid additional taxes (plus a possible 20% negligence penalty).
Too much information can add audit risk.
While most audits are limited in scope, the IRS agent has the authority to increase that scope based on what they find in their original analysis. That means that if they find a document or hear something you say that sounds suspicious, they can extend the audit to additional areas. Being prepared with the proper support from your advisor and concise, smart answers to their questions is the best approach to limiting further audit risk.
Missing an audit deadline can lead to trouble.
When you receive the original audit request, it will include a response deadline (typically 30 days). If you miss the deadline, the IRS will change your tax return using their interpretation of findings, not yours. This typically means assessing new taxes, interest and penalties. If you want your point of view to be heard, get help right away to prepare a plan and manage the IRS deadlines. While you might think you have time to take this on, you don’t want to risk paying the price of a missed due date.
Relying on an expert gives you peace of mind.
Tax audits are never fun, but they don’t have to be pull-your-hair-out stressful. Together, you and your tax advisor can map out a plan and take it step-by-step to ensure the best possible outcome. You’ll rest easy knowing your audit situation is being handled by someone with the proper expertise that also has your best interests in mind.