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How to Survive a Tax Audit

So the IRS wants to have a little chat with you. Don’t make things worse by behaving stupidly at the audit.

Instructions

  • Step 1: Consider getting representation Consider hiring someone to represent you at the audit. There’s a good chance the fee will be offset by the money a pro can save you.
  • TIP: Contact the National Association of Enrolled Agents for a tax pro; many are former IRS auditors.
  • Step 2: Keep your mouth shut Keep your mouth shut. The biggest mistake people make at audits is providing more information than the auditor asks for, leading to even further scrutiny. Speak only when spoken to, and answer only what has been asked.
  • Step 3: Leave old returns at home Bring only the documentation requested. Do not bring copies of previous returns that are not being audited, or you’ll open yourself up to questions about those, too.
  • Step 4: Don’t shoot the messenger Remain polite by reminding yourself that the auditor is just doing his or her job.
  • TIP: If another return becomes due while you’re undergoing an audit, request an extension. Otherwise, it may be dissected, too.
  • Step 5: Appeal If you end up owing money—which the majority of taxpayers who are audited do—appeal the decision. Roughly half of people who do get their penalties reduced.
  • Step 6: Don’t follow up Never follow up if you don’t hear anything after the audit. Auditors have 28 months from the time you filed your return to render a decision. By bugging them, you may push them to complete an audit that would have died on the vine.
  • Step 7: Avoid future problems When preparing your returns in the future, avoid these red flags: charitable contributions that exceed 5% of your income, taking undeserved tax credits, business expenses that seem excessive compared to your earnings, and careless errors like adding a column wrong or forgetting to attach a 1099.
  • FACT: Fewer than 2% of individual income tax returns are audited.

You Will Need

  • Self-restraint
  • Good manners
  • A tax specialist or lawyer

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