An IRS audit is stressful, but there’s a silver lining. In most cases, an audit by the IRS should not worry you, because it doesn’t necessarily mean you’re in trouble. In many cases, the IRS has a few questions, and a few simple answers will suffice.
We’re here to help with your tax audit. This article will explore the kinds of audits you might face, as well as the best ways to handle them.
An Audit Does Not Mean You Are Guilty
Receiving a letter from the IRS does not indicate that you are guilty of tax evasion or any other crime. There are many outcomes to an audit. Yes, you may owe additional taxes, but that is just one possible outcome.
An audit may reveal that you overpaid your taxes. Over $1 billion was paid back to Americans who were audited in 2015. Furthermore, a fair number of audits end in no change whatsoever. Don’t assume the federal government is going to punish you. In many cases, the IRS just has a few extra questions.
Different Types of IRS Audits
Now that you know a little about the possible audit types, let’s look in-depth at each one, so you know the best ways to handle your audit, as well as who is available to assist you.
How to Handle a Correspondence Audit
The Correspondence Audit is the most common type of IRS audit and is the easiest to handle. A correspondence audit does not necessarily mean that you are in trouble. The IRS may be requesting additional proof of your tax return claims, or they may only need to clarify some necessary information (e.g., name, address).
If you get a request for information, the most crucial step is to retrieve all the documents they are requesting: tax returns, receipts, etc. Organize these documents and review them for accuracy and completeness. If you left something out, misinterpreted some information, filed something in the wrong category, or simply need to explain an action you took in more detail, identify exactly what action you need to take. Act promptly.
If necessary, a tax accountant can help. He or she can handle this entire process if you supply them with your documents. You (or your accountant) will need to provide the IRS’s requested documentation within 30 days. Later in this article, we’ll explore what happens if you don’t respond to an IRS audit.
How to Handle an Office Audit
Office audits are another for an IRS audit and can be a little trickier than correspondence audits. If an IRS agent needs to meet with you, they probably need to cover multiple areas of your tax return. This is a good time to hire a tax accountant. Tax codes are notoriously complicated, so it’s best not to attempt an office visit with the IRS by yourself.
A tax accountant will prepare you for the meeting. They will tell you what to bring and what to say at the meeting. They are your legal representation, so the most important thing is honesty. Your accountant may ask difficult or personal questions about your finances, but it’s important to tell the truth.
A tax accountant may be able to handle the entire office visit for you, which means you can stay at home or your job while a professional works on your behalf. For this to be successful, your representation needs to know everything relevant about your finances.
How to Handle a Field Audit
Field audits are very personal form of an IRS audit and can feel invasive. The IRS tends to do field visits for wealthy individuals who are suspected of committing severe tax offenses. Bank deposits, withdrawals, gifts, etc. may be scrutinized. In these cases, the IRS is investigating tax fraud, which is a grave matter. It is crucial that you hire a tax professional for a field audit.
If you’re preparing for a field audit, grant your tax accountant the power of attorney. They will represent you during the audit and walk you through the process. Good tax accountants are in the best position to advocate on your behalf because they understand the intricacies of the tax code. They can also handle any extra visits with the IRS, saving you the stress and hassle.
What Happens if You Don’t Act on an Audit
It’s not a good idea to ignore an audit or put off dealing with it. Each type of audit has different consequences if ignored.
Audits are serious business, but there’s always help. Tax professionals are your best bet for assistance, especially if you receive an office or field audit. If you’ve recently received an audit from the IRS, respond to it as soon as possible, and you will probably realize that it wasn’t as bad as you thought.