The number of IRS audits is increasing. If you get a notice in the mail, here are some secrets to get your through them unscathed (or at least minimally scathed).
Secret #1: Not All Audits Are Created Equal
There are three different types of audits. These three types of audits are: correspondence, office and field
- Correspondence Audit
This is the most common type of audit. This type of audit comes by mail and is done by mail. Typically the IRS will ask you to mail certain documentation to them supporting certain items that you filed on your tax return.
The IRS has found a gold mine in Correspondence Audits. The number of them has gone up by 285% this past year.
- Office Audit
The office audit is a meeting set up with the IRS that the IRS determines the time and specific documents that you should bring with you for support. The IRS will send a letter setting a time and date or requests that you call them up to setup an appropriate time. Mainly in these types of audits the auditors will only examine “significant” items on your tax return. We recommend that you never go to these audits by yourself. In fact, it’s best if you just stay home.
- Field Audit or Home Audit
This is when you receive a notice that the IRS wants to come to your home or business for an audit. These are typically the most serious types of audits. The IRS top auditors are used in these types of audits. You definitely want to have a tax professional help you with this type of audit.
Secret #2: Rules of Engagement
- You must respond to your Audit Notice within 30 days. If you give them a call, be very careful with any information you volunteer.
- Organize your files. Pull together your business minutes.
- Replace any missing records such as bank statements or important receipts.
- Copy your records. Do not give the IRS original documents.
- Don’t be argumentative.
Secret #3: Create a Strategy First
This is the part where you want to have a tax professional on your side. You could represent yourself – scared, volunteering information and getting yourself in deeper and deeper. Or you could have a pro with you. But, all pros aren’t created equal.
Here are some things your tax professional should be asking you:
- What type of audit is this exactly?
- What items are they targeting
- Do you have copies of minutes that substantiate these expenses and verify income source?
- What shape are your records in right now?
Your tax professional should either give you a copy of the IRS audit handbook along with the key points to win each question that you’ll be asked or should go through it with you, so he’s prepped with the answers that will stop the auditor cold.
The IRS has a playbook. And thanks to the Freedom of Information Act, you can get a copy. But it’s up to your tax professional to coach you through the necessary points. Make sure you’ve got the right advisor for the task!