How to Resolve a Tax Audit?

Joe Valinho
Expert Contributor
Last Updated:
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There are many misconceptions about tax audits. Some people think that only those who evade taxes have to undergo a tax audit. Others think that a tax audit means the IRS will investigate all of your finances and assets.

The fact is that the IRS conducts tax audits based on:

  • Their review of your return if they find discrepancies that they wish to examine
  • Random selection of a return by their computer analytical program
  • Related audits where somebody financially related to you, such as your business partner, was audited

A tax audit does not necessarily mean that you will have to face an IRS agent who will go through all your financial details. Audits can be as simple as sending the IRS certain documents that they requested.

How Does a Tax Audit Start?

When the IRS selects your return for an audit, they send you an audit notice. This notice has information on why they send you the audit notice and what they require you to do.

How to Resolve a Tax Audit?

Depending upon what they want to investigate, the notice will tell you if you need to respond to them through mail or have an in-person interview with an IRS agent.

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How Do I Resolve a Tax Audit?

When the IRS sends you a tax audit notice, you have three options. You can:

  • Respond to the IRS yourself
  • Hire a professional tax service to work on your behalf
  • Take no action

What happens if you take no action?

The worst thing you can do is to take no action. When the IRS sends you an audit notice, they have their eyes on you. If you don’t respond, it will only make matters worse. Then, the IRS can demand the information and gather it on their own.

If you have a tax representative and he/she refuses to share your information with the IRS, then the IRS can gather the information, and the tax representative will be in violation of the Department of Treasury’s Regulations Governing Practice before the Internal Revue Service.

If you have concerns regarding the sharing of a certain document or information with the IRS, it is best to talk to the IRS about it and explain to them your concerns.

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When you receive a notice, whether you are in compliance or not, it’s time to address the issue and resolve it.

How you can respond to the IRS yourself?

If you are confident that you can handle the IRS yourself, you can respond to them directly. If the IRS has only asked you for certain documents by mail, and if you are certain that there is no non-compliance and you have all documents to support your claims, then you can go ahead and send in your response to the IRS.

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However, not all audits are that simple. Things can get complicated when:

  • Even if you have been in compliance, you do not have supporting documents to support your claim of your compliance.
  • You owe back taxes.
  • You evaded taxes knowingly or unknowingly.

In such cases, it’s best to take the help of a professional tax service. Also, if the IRS has requested an in-person interview with you, it’s better to have your tax representative with you.

How a tax service can assist you?

Your tax professional will help you to prepare the documents, guide you regarding the interview, and hold talks with the IRS on your behalf. If you are unsure about your financial details or don’t have certain documents, a tax professional or service will also help you gather documents.

Professionals such as tax attorneys and enrolled agents are knowledgeable about the tax laws, IRS rules, and the tax code. Along with that, they routinely carry out negotiations with the IRS. That is why it is important to have someone like that with you when dealing with the IRS.

What You Shouldn’t Do in an Audit

Avoiding simple mistakes can ease the process of an audit. The IRS acts professionally and also expects the same from the taxpayer under audit. Keeping these points in mind will help you to avoid audit potholes.

  • Sending incomplete records can complicate an audit and make it more time-consuming. Before you send in your reply to the IRS, prepare your documents carefully. The IRS needs a written proof of everything you disclose and have claimed in your tax return, so having proper records is essential.
  • In an in-person interview, never give more information than is asked. Be precise with your answers and have documented proof of all the claims you have made in your tax returns.
  • The IRS usually doesn’t go back beyond three years in an audit. Typically, if they find some major discrepancy that leads to owing a significant amount in back taxes, then they will go back until six years or more. Therefore, prepare until three years back if the IRS hasn’t specified which year’s returns they will be examining.
  • Read the notice carefully and thoroughly and take your time to reply. Do not send an acknowledgment letter if not asked. Take time to understand what action they want you to take and prepare your reply carefully. If in doubt, ask somebody (preferably a tax lawyer or a person who has undergone an audit) to double-check your response.

For How Long Does an Audit Last?

An audit may last for a week, a few weeks, or months. It depends on what the IRS wants to investigate and how deep they wish to dive.

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Even though delays are inevitable in some cases, such as when a taxpayer may be away and requests more time to reply, it’s best to respond to the IRS audit as soon as possible.

However, if you feel that you need more time to respond, you can send in a written request for additional time. The IRS might grant a 30-day extension if they did not send you the ‘Notice of Deficiency.’ In the case you received that notice, the extension is not granted.

A tax audit might be bothersome, but it does not need to become a pain. With proper action taken in time, you can come out of a tax audit with ease. If you think you cannot handle the IRS yourself or even if you are in the middle of a complicated tax audit, you know that help is just a click away.

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Joe Valinho
Expert Contributor
Last Updated: