As mentioned in previous posts, receiving an IRS audit notice is a frightening experience that may make you want to run and hide. But you can’t because ignoring an IRS audit only makes the situation worse and more expensive. So the logical option is to deal with it, but how do you when panic mode has already set in.
My colleague, Eva Rosenberg, EA, national columnist and a teacher of tax law and representation aka TaxMama, recently wrote an article titled The Dreaded IRS Audit Notice offering three no-nonsense steps to better understanding the IRS correspondence. Taxpayers facing this dilemma are encouraged to read her article to get a better handle on what information the IRS is looking for and if they should hire expert tax representation to resolve their tax issue.
Here are three simple steps Eva suggests you follow after receiving the dreaded IRS Audit Notice:
Step 1. Read the audit notice, slowly.
The notice will tell you which year is under audit (generally IRS only audits one year at a time.); what forms or schedules IRS wants to examine (For instance, Schedule A – Itemized Deductions; or Schedule C – Business Profit and Loss); and provide a list of records or documents the IRS wants to see. The notice will show the audit date, providing contact information (by mail or phone) for the person or group in charge of your audit.
Step 2. Figure out where the audit is taking place – and if you should change the location.
- Will it be a mail-in audit? (correspondence audit).
- Must you go to an IRS office (office audit)?
- Or is someone coming out to your home or place of business (field audit)?
Step 3. Ask yourself: can you do this alone, or do you need help?
When there are just a few issues under examination, you should be able to pull the records, copy them, and send them off to the IRS. However, if this is field audit, you definitely need a qualified tax audit specialist on your side! You want your tax pro to help you prepare, and to be by your side when the IRS shows up. When IRS is looking at certain concepts, you need expert guidance from a competent tax professional that can be in form of advice and hand-holding. Better yet, have your tax pro handle things for you:
- Is your business really a hobby? (losses for too many years)
- Did you report all your income? (living beyond your means)
- Do you really have an office in home? (there’s another business or job location)
- Are those really your children? (Someone else claimed them.)
- Your job or business expenses are over $20,000 – are they personal expenses?
If you are still unsure, Eva recommends reading about your rights and watching a series of informational videos the IRS put together about a small business audit. Her theory is that perhaps seeing how it all works will make an audit it easier for some.
I appreciate Eva’s well thought out strategy. However, I would like to emphasize the need for hiring a tax audit specialist if you are facing an IRS field audit. Why? The IRS has already increased tax audits and aggressive collection tactics including levies and continuing to crack down on both small businesses and individuals. Tax audit specialists already understand the audit process and can begin making a tax relief action plan on your behalf that can help to resolve your IRS issue once and for all.
