Receiving any notification from the IRS can be stressful, but receiving a notice that you’re being audited is enough to make anyone panic. The IRS conducts audits for any number of reasons — and not necessarily because you have done anything wrong. However, even if you are sure that you have nothing to worry about, you still need to take an IRS audit seriously and consider hiring a tax attorney if you think there is anything the IRS could misconstrue.
In this article, we’ll provide a little background on why the IRS may have chosen you for further scrutiny and then offer six tips for surviving your tax audit.
Red Flags for the IRS: Why Am I Being Audited?
Before we get into how to survive a tax audit, let’s talk about why you’re under investigation in the first place. There are a variety of red flags the IRS looks for on tax returns that signal them to select you for an audit. Typically, your return will be flagged if the information you provided falls outside of their expectations. But remember, just because the IRS is auditing you doesn’t mean that you’ve done anything wrong, only that they believe you might have. In this regard, don’t go out of your way to avoid the red flags listed below, but be aware that they might be the reason for your audit.
- Claiming 100% business use of a vehicle
- Taking an early IRA or 401k payout
- Unusual schedule C reports
- Large foreign currency transactions
- Extensive charitable donations
- High rental property income or losses
- Claiming earned income credit
The IRS will mail you a notice of your audit that should explain why they are auditing you. If you are confused by their explanation for the review or believe they have made a mistake, contact a tax attorney before replying to the notice or agreeing to meet.
6 Steps to Surviving a Tax Audit in 2019
1. Take Time to Prepare for Your Tax Audit
Do not contact the IRS immediately after receiving an audit notice. You’ll likely have around 30 days until you need to respond, which gives you plenty of time to contact a tax attorney and prepare supporting documentation. The documentation you need will depend on what the IRS is investigating and will likely include:
- Receipts and bills
- Legal papers
- Loan agreements
- Medical documents
- Proof of employment
- Mileage logs
2. Avoid Hosting the Tax Audit
If the IRS requests that you respond in-person to their audit, try to avoid having them do a field visit to your home or place of business. Instead, see if they can conduct the meeting from their own office or that of your accountant or tax attorney. Permitting the IRS access to your business or home might allow them to see something that reinforces their conviction that you have done something wrong.
3. Be Concise and Precise
Do not offer any information that the IRS agent does not specifically ask of you, but make sure the information you do provide is both truthful and detailed. The more detailed information you provide, the more confidence you will instill. However, providing additional information could give them something to use against you that they otherwise wouldn’t have known to ask.
4. Defend Your Position, But Don’t Argue with an IRS Agent
Don’t say you did or didn’t do something unless you can prove it. Don’t try to argue how much taxes you owe, but if you feel like you should have a disallowance or deduction, defend your position. Try to negotiate your options without coming across as defensive or argumentative. A tax attorney can be a significant asset in helping you walk the line between being difficult and letting the IRS take advantage of you.
5. Understand Your Rights During a Tax Audit
You have rights as a taxpayer and can find the official IRS publication detailing all of those rights here. One of the most useful privileges on the list is the right to retain representation in all dealings with the IRS, including when you are undergoing an audit. Another essential right includes being able to challenge and appeal an IRS decision.
6. Work With a Tax Attorney During a Tax Audit
It is always best to work with a tax attorney from the very beginning of an IRS audit to be as prepared as possible for anything they might throw at you. However, if you try to go it alone and decide later during an in-person audit that this is more than you can take care of on your own, you can call a recess and quickly contact your tax attorney for advice.
Need Help Surviving Your Audit? Contact S.H. Block Tax Services
If you have any questions or concerns about an impending tax audit, please contact the tax attorneys at S.H. Block Tax Services. Our skilled attorneys have experience working with the IRS to resolve tax issues and protect taxpayers’ rights.
Schedule your free consultation today by calling 410-793-1231 or completing the brief contact form to the right.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.