I Just Got an IRS Notice of Audit, What Should I Do?

On: January 4, 2019

IRS, state and local taxation agency audits are long, tedious and paper intensive. Upon receiving a notice of an IRS or tax agency audit, consider your resources, your records and your time. Tax Audits are very distracting and take time away from your employment, business, family and life. Most people get very frustrated and hire outside help, if only to hold their hand and lead them through the torturous maze of IRS and tax agency bureaucracy forms and paperwork. The IRS and taxation agencies would most likely agree with this and tend to exhale with relief when they see a professional on the case. Next you need to locate and gather your records. The tax audit will be on a given year (or years). You should start with locating your tax returns for the years in question. You will then need to locate every pay stub, bank statement and hand written record on your income and gains reported on that year’s tax return. Then it is receipt time. For every expense reported for a given year above and beyond the standards allowed by the IRS (in the case of an IRS audit), you will need to provide backup. This material is factual in nature and cannot be magically provided by your tax professional. Handwritten log entries have been known to work, depending on the auditor and the nature of a job/business. Once all the above material has been located, you will need to organize it. If you hand disorganized boxes of income records and receipts to the IRS or tax agency auditor, they will proceed as though the records do not exist. If you request your tax professional to prepare these records, I am sure they will do so, but for an additional fee. They will not be happy. This is a good time to use a local bookkeeper that is acquainted with you, your job, your lifestyle and/or your business and hire them to prepare these records and create summaries that both the IRS/tax agencies and your hired professional can use. This will reduce costs, speed the process and keep everyone relatively happy. If your case is complex, unusual or if you do not have adequate records, you should consider hiring a tax attorney. There will be a story that will need to be told, and an internal investigation to back it up. Tax attorneys are good at gathering evidence and telling stories. Finally: Keep cool. This is a process, not a judgment. Open the envelope, read the letter and get help if you need it, and it is likely you will. Audits are time consuming. And remember, auditors are annoying, but they are not executioners. Yelling at them does nothing. Getting them to laugh gets you halfway there.