Whether you are an individual taxpayer or a small business owner, receiving a tax audit notice from the IRS can give you some anxiety. Remember that being audited does not mean you did anything wrong. What matters is how you respond, how well you prepare, and knowing how to protect yourself throughout the process.
Here is what you need to know about what to expect and how to prepare for this process. We will also look at protecting your rights during a tax audit.
What Is a Tax Audit?
A tax audit may sound scary, but it is a tax return review. The IRS wants to make sure everything was reported correctly. You may get a letter to ask for clarification on certain figures, deductions, or income sources.
Audits can happen for a variety of reasons. Sometimes, it is due to a mathematical discrepancy, while for others, it is a random selection or a red flag that triggers the request.
There are several types of audits, such as:
- Correspondence audits: These are done by mail. They focus on one or two specific items.
- Office audits: These require you to visit a local IRS office.
- Field audits: These are conducted at your home, business, or accountant’s office.
Knowing what type you are facing can help you plan appropriately.
Your Rights as a Taxpayer
When the IRS contacts you, it is easy to feel powerless. But remember, you have rights, and they are backed by law. Taxpayer Bill of Rights provides certain protections, including:
- The right to be informed about what the IRS is doing and why.
- The right to challenge the IRS’s position and provide supporting documentation.
- The right to retain representation to speak and negotiate on your behalf.
- The right to appeal decisions
- The right to privacy and confidentiality is to make sure that any information you share is handled with care and discretion.
These protections are designed to ensure the process is fair for you.
How to Prepare and Protect Yourself
If you have received an audit notice, don’t panic. You also do not want to ignore it either. Here are a few tips on how to prepare:
Read the Letter Carefully
Start by reading the audit notice. It will explain what is being questioned and what documents you need to provide. You will want to adhere to the deadlines listed and begin organizing your documents right away.
Collect Your Documents
Collect all the paperwork related to the tax year in question. This can include receipts, invoices, bank statements, mileage logs, contracts, payroll records, and anything else that could be relevant.
Talk to a Tax Professional
Even if you usually handle your own taxes, you may want to get help during an audit. A CPA, enrolled agent, or tax attorney can review your documents, communicate with the IRS, and help you through each step. Most importantly, they can protect your rights and help avoid missteps.
Don’t Overshare
It might seem like a good idea to be overly cooperative and provide more than what is asked but resist that urge. You only want to provide what the IRS has requested. Volunteering extra documents or explanations could open the door to additional scrutiny.
Stay Calm and Professional
Whether you are meeting with an agent or responding by mail, keep your communication respectful and focused. If you disagree with the findings, express that clearly and ask about your appeal options.
What Happens After the Audit?
Once the IRS has reviewed your materials, they will reach one of three conclusions:
- No change: Your return is accepted as filed.
- Agreed change: You accept their proposed adjustments.
- Disagreed change: You challenge their findings.
If you disagree, you have the right to appeal. You can request a conference with the IRS Office of Appeals or pursue your case in court.
Legal Assistance for Your Tax Audit
No one likes the idea of being audited, but it does not have to be a nightmare. Knowing what to expect and how to prepare can help you protect your rights during a tax audit.
If you are facing a tax audit now or suspect you might in the future, Easter & DeVore, Attorneys at Law, can assist. Reach out to us today to discuss your situation.
