One of the scariest financial situations that many people can imagine is the tax audit.
The good news is that your chance of being audited is relatively small. Only about 1 million, out of the tens of millions of people that file taxes, are audited each year.
Additionally, most audits are quickly taken care of through the mail. In most instances, the IRS just needs a piece of documentation from you. Make a copy (never send the original) and send it in.
However, there are some instances in which you have to go through a more involved audit process. Your best defense is, of course, to make sure that you never claim anything on your taxes that you don't have documentation for.
But if you are audited, and even if you have documentation, and required to go through a more involved process, here are some things to keep in mind:
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Consider Getting Representation
If you have a tax professional file your taxes, chances are that he or she will also represent you to the IRS — for free. You are entitled to have someone represent you, and this is often the best course of action. That way, you won't slip up and say something you shouldn't. Additionally, a tax professional is usually experienced with working with the IRS. Someone who has prepared your taxes knows your situation, and can help ensure that the IRS gets what it needs. You don't actually have to interact with the IRS when you have a representative handle everything on your behalf.
Understand Your Rights
You have rights when it comes to your tax audit. If you decide you want to talk to the IRS yourself, rather than relying on your accountant, or paying for someone else to represent you, it's important to know your rights and be smart about the situation.
- You can schedule the audit for a time that is convenient to you, as well as choose a meeting place. However, some suggest that you don't hold the meeting at your own home, since you don't want the IRS representative to see something that triggers more questions.
- You will receive a letter explaining the issue in question. You don't have to answer questions that aren't related to the specific issues in question. Make sure you know what is the audit letter, and avoid talking about other issues. You can politely get the audit back on track.
- You are entitled to a recess at your request. If you are unsure, or uncomfortable, then ask to leave the room and take a break. You can call your accountant, or look for other documentation, or just calm your nerves.
- If you can't find missing documents, you can do your best to reconstruct them. If they seem reasonable, the IRS should accept them.
- You have the right to complain to an auditor's supervisor, and you have the right to appeal the outcome to your audit to the Tax Court.
Surviving Tax Audit
And, if you want, you can let the IRS know 10 days in advance that you want to make an audio recording for your own records. Try to remain calm during the audit, and do your best to remain polite. Avoid volunteering extra information, and don't bring any documentation that isn't specifically called for.