IRS Audit Tips

  • In an audit, you must convince the IRS that you reported all of your income and were entitled to any credits, deductions and exemptions that are questioned.
  • Having accurate documentation is important. Make sure to separate your personal and business expenses. Get a separate business checking and credit account. Not having separate accounts for your business may lead the IRS to think that it is a hobby instead of a business.
  • Delaying the audit usually works to your advantage. Request more time whenever you need it to get your records in order or for any other reason.
  • Keep the IRS from holding the audit at your business or home. Instead, go to the IRS or have your tax professional handle it.
  • Give the auditor no more information than they are entitled to, and don’t talk any more during the audit than is absolutely necessary.
  • Don’t expect to come out of the audit without owing something –the odds are against you.
  • Don’t give copies of other years’ tax returns to the auditor; if you do and they see something they don’t like they will make adjustments in these years too.
  • The IRS must complete an audit within three years of the time the tax return is filed, unless the IRS finds tax fraud or a significant underreporting of income.
  • If you have something to hide, don’t provide evidence to the auditor, but don’t lie either. The adjustments they may make could be less damaging than if you had given them what they asked for. If in doubt, see a tax professional.
  • If the audit is not going well, demand a recess to consult a tax professional.
  • Ask to speak to the auditor’s manager if you think the auditor is treating you unfairly.
  • Read IRS Publication 1, explaining the Taxpayer’s Bill of Rights, prior to your audit.
  • Research tax legal issues by using free IRS publications and commercial tax guides.
  • If you are still unclear about the tax law or how to present your documents to an auditor, consult a tax professional before the audit.
  • If you are missing receipts or other documents, you are allowed to reconstruct records.
  • Don’t bring to an audit any documents that do not pertain to the year under audit or were not specifically requested by the audit notice.
  • It is possible to negotiate tax issues with the auditor but not the amount of taxes to be paid.
  • If the subject of tax fraud comes up during an audit, don’t try to handle it yourself.
  • Field audits are more intensive than office audits. They are used mainly when there is business income; consult a tax professional before a field audit.
  • When you get the examination report, call the auditor if you don’t understand or agree with it. Meet with his or her manager to see if you can reach a compromise.
  • If you can’t live with an audit result, you may appeal within the IRS or go on to Tax Court.