If there’s one phone call or text from a client that I’d rather not get, it’s that panic-stricken voicemail or all-caps text message telling me that they just received the dreaded tax audit letter from the IRS. I completely understand the emotions. Just the sight of the IRS logo on the envelope is enough to put most of our alarm bells into hyperdrive, even knowing that taxes were submitted on time with only legitimate deductions and a truthful reporting of income. What to do now?
Here’s a few steps to help reduce your panic and take control of your IRS situation.
Know you have the right of representation during an IRS audit. Enrolled Agents (EA), Certified Public Accountants and tax attorneys are approved to represent taxpayers before the IRS, and the EA is the only professional required to demonstrate his/her competence in all areas of taxation, representation and ethics before they are given unlimited representation rights before the IRS. Tax attorneys and CPAs are licensed by the state in which they practice and have limited representation rights (see the disclaimer below).
It’s good to know your rights during an IRS audit. They are spelled out in plain language in IRS Publication 1 available here.
Stay calm and prepare your records. Paper and electronic records should be kept for a minimum of three (seven, in some cases) years from the date the tax return was filed. If on paper, gather your documents for the stated audit year and organize them into logical time periods. Make sure your check registers are up-to-date, and meaningful receipts are in hand. We can’t represent you, but we can help you organize these things in advance of a meeting with someone who can.
Most importantly, don’t panic. There are many reasons certain individuals are chosen for an audit. It could just be a random check, a typo on your return, missing documentation or a wrong or missing form. High charitable donations above and beyond your normal philanthropy are red flags to the IRS, and so are spikes in deductions, even though they may be completely legitimate.
(The Dreaded Disclaimer) We must advise you, based on current IRS rules and standards, that any advice contained in this article is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to tax audits, so don’t rely on it as qualified tax and accounting advice. This article does not fall under the guidelines of IRS Circular 230. Remember, if you need help, we’re happy to refer you to a qualified EA or an approved CPA or tax attorney.