If you’ve received a notice from the Internal Revenue Service (IRS) informing you that you’re being audited, don’t panic. While an audit can be stressful, it’s important to stay calm and take the appropriate steps to respond to IRS. With the right knowledge and preparation, you can navigate the audit process and increase your chances of a favorable outcome.
In this blog post, we’ll discuss what an audit is, why the IRS might audit you, and what you should do if you receive a notice of IRS audit.
What is an IRS Audit?
An IRS audit is an examination of a taxpayer’s tax return, financial information, and other related documents to ensure that the information provided is accurate and complete. The goal of an audit is to verify that a taxpayer has paid the correct amount of tax and complied with all applicable tax laws.
Why Might IRS Audit you?
IRS selects tax returns for audit for a variety of reasons. Some returns are chosen at random, while others are selected based on certain red flags or discrepancies. Some common reasons for an audit include claiming excessive deductions or credits, failing to report all income, and having unusual fluctuations in income.
What to do if You Receive an IRS Audit Notice
Knowing how to respond to an IRS audit notice can alleviate some of the stress associated with the process and increase the likelihood of a positive result. In the upcoming section, we will provide a detailed, step-by-step guide on how to manage an audit notice.
Review the Notice Carefully
The first step in responding to an audit notice is to carefully review the notice and understand what is being requested. The notice will typically provide important information, such as which tax return is being audited, the items being examined, and the date by which a response is required. It is important to read the notice carefully and make note of any deadlines or specific instructions.
Respond Promptly and Professionally
Receiving an audit notice can be a stressful and intimidating experience for many taxpayers. However, it is important to remain calm and respond promptly and professionally to the notice. This will help to establish a positive relationship with the IRS and show that the taxpayer is taking the audit seriously.
Gather Necessary Documentation
Once the notice has been reviewed, the taxpayer should gather all necessary documentation to support their claims. This may include receipts, bank statements, and other financial records. It is important to provide accurate and complete information to the IRS, as any discrepancies or omissions can be viewed as suspicious.
Gathering all the necessary documentation is a crucial step in responding to an IRS audit notice. It’s important to gather all relevant financial records, receipts, and bank statements to provide a complete picture of your finances. The documentation should be organized and clearly labeled, making it easy for the auditor to understand the information presented.
It’s also essential to ensure that all information provided is accurate and complete, as any discrepancies or omissions can be viewed as suspicious.
Consider Hiring a Tax Professional
In some cases, it may be beneficial to hire a tax professional to assist with the audit. A tax professional can help ensure that all necessary documentation is provided, and can represent the taxpayer during meetings with the IRS. This can help to alleviate some of the stress associated with the audit process and can also increase the chances of a positive outcome.
Appeal the Decision if Necessary
If the taxpayer disagrees with the findings of the audit, they may appeal the decision to the IRS Office of Appeals. This is an independent organization within the IRS that provides a forum for taxpayers to resolve disputes. The appeals process can be a useful tool for resolving issues with the IRS, and may be able to provide a more favorable outcome for the taxpayer. If an agreement cannot be reached, the taxpayer may also have the option to file a petition in the U.S. Tax Court. This is a formal legal process that can be used to challenge the findings of the IRS and can be a useful tool for taxpayers who believe that they have been unfairly treated.
Receiving a notice of IRS audit can be stressful, but it’s important to stay calm and respond appropriately. By following the steps outlined in this blog post, taxpayers can ensure that they provide accurate and complete information to the IRS, and can work to resolve any issues that may arise during the audit process.
Need Help Responding to an IRS Audit?
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.