If you receive an IRS audit notice, following these best practices will help ensure a smooth process:
Step 1: Review and Verify the Notice
When you receive an audit notice, make sure it arrives by mail—IRS notices are never sent via phone or email. The notice informs you that your tax return has been selected for further review, but this doesn’t necessarily mean you owe additional taxes or are in legal trouble. The notice will specify:
- The tax year under examination
- The issues being reviewed
- Contact information for the IRS examiner
- A list of required supporting documentation
Carefully note the deadlines for your response. Timely action is crucial to avoid penalties and ensure compliance.
Step 2: Gather Requested Documents and Respond
The notice will outline which parts of your return are under scrutiny and list the documents you need to provide. Collect all relevant records to support your return, such as receipts, bank statements, and other financial documents. For example, if you claimed business deductions, you’ll need to provide proof, like receipts or payroll records, showing the expenses were business-related.
Make sure your documents are well-organized to help the IRS auditor clearly identify the information. A clear, thorough response can help resolve the audit more efficiently. Submit the requested materials promptly to stay in compliance.
Step 3: Prepare for Audit Meetings and Consider Representation
Depending on the type of audit, you may be asked to attend an in-person meeting. While taxpayers can represent themselves during an audit, it’s often beneficial to seek professional representation, especially if the audit is complex. Tax professionals, such as enrolled agents, CPAs, or tax attorneys, are experienced in dealing with IRS audits and can help communicate with the IRS, review your documentation, and anticipate potential issues.
Step 4: Review the IRS’s Findings
There are three possible outcomes from an IRS audit:
- No change: The IRS finds no discrepancies, and your tax return remains as filed.
- Agreed: The IRS proposes changes to your tax return, and you agree with their findings. You will need to sign an agreement form and arrange to pay any additional taxes owed.
- Disagreed: The IRS proposes changes, but you disagree with their findings. In this case, you can appeal through the IRS Office of Appeals.
Step 5: Pay the Tax or Appeal the Decision
Once the IRS issues its decision, you must decide whether to agree or disagree. If you agree, you can pay the balance due in full or set up a payment plan. If you disagree, you can appeal the decision. This may involve working with an IRS appeals officer or taking the case to the U.S. Tax Court if necessary.
By following these steps, you can handle an IRS audit more effectively, ensuring your rights are protected and your case is presented in the best possible light.
