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A federal tax audit can be an intimidating experience, but there are some things you can do to make it easier. Here’s a step-by-step process of what happens during a tax audit, so you know what to expect.
- First, you’ll receive an audit notice that you have to acknowledge. Don’t ignore this notice. If you do, the IRS can simply order a review of your tax return and bill you for any discrepancies they might find. You have 30 days to respond to the audit notice, so make sure you reply within this time frame.
- Next, you need to organize all your tax records and receipts. Make it easier for the auditor to find and recognize the records and you won’t antagonize the auditor. It’s better to try to get along with the auditor rather than resist.
- It’s important to keep your tax records in good order, because experts say that 80 percent of federal audits result in additional taxes owed not because of mistakes on the tax return, but because those audited cannot produce satisfactory tax records. Make sure you keep them orderly and know where to find them. You can attach additional information, calculator tapes, or other documentation to help explain your return, too.
- If you have representation, go over your return and records with them before the federal audit. Most experts
recommend asking your accountant or tax preparer to attend your audit meeting with you. If they won’t, you can hire a representative with audit experience to represent you in your meetings with the IRS auditors. It’s a good idea to work with one of these professionals, who have far more experience than you do in dealing with IRS auditors. They can make the process much smoother and far more professional.
- There are three types of audits, the correspondence audit, which is the least serious, the office audit, which is a step more intense, and the home or field audit, which is the most serious. Usually, field audits occur in businesses and individuals that earn more that 100K per year.
- Finally, you can appeal the decision in your tax audit if you feel it was unfair or conducted improperly. All tax audits don’t result in you owing back taxes, but most of them do. If you appeal your audit, it will go to an auditor supervisor, who may have more experience with the audit process. Your audit representative can help you with the appeal process, too.
A federal tax audit may be intimidating, but you can get through the process. Hire a professional, use their advice, keep your records in order, and don’t forget you can appeal the process, and you’ll survive your audit and put it behind you.