Whether you’re being audited via correspondence or you’re meeting an IRS revenue agent face-to-face, it’s easy to end up in a worse situation than before. You’ll have a few weeks before your audit to prepare; before you begin, know what you should and shouldn’t do while you’re being audited.
When you’re being audited, you should:
- Provide documentation, as long as it’s relevant.
You’ll be asked to provide documents regarding the deduction or claim that’s being audited. For example, you said you used your car strictly for business purposes and said your mileage was a deductible business expense. During an audit, you need to provide thorough documentation of your mileage and any other requested materials. That’s all. - Be polite and calm.
Audits are stressful. It’s important to stay calm and courteous during the process, although it’s understandable to feel under pressure. Whatever you do, avoid blurting out any extra information. - Be honest.
But don’t be too honest. Tell nothing but the truth, but the whole truth might leave you open to further audits. - Request an extension, if needed.
Finding years-old documents can take a long time. If you explain this to the IRS, you’ll probably receive an extension. The last thing you want is to go into an audit unprepared. - Know your rights.
Don’t let the IRS agent walk all over you. As a taxpaying citizen, you have rights! Read the IRS’s Taxpayer Bill of Rights before your audit. There’s also the possibility of a criminal tax investigation; if a law enforcement officer comes to your door regarding a tax matter, stay silent and find an attorney as soon as possible.
During an IRS audit, you should never:
- Be too chummy or rude.
Anything you say can be used against you by an auditor. Keep conversation strictly professional; even small talk and casual jokes can prompt questions from the revenue agent. - Share all of your information.
Just like everything else in life, there is such a thing as too much information. That’s especially true with IRS audits. You may think that total disclosure with the agent will help your case, but handing over the entirety of your tax forms will allow the auditor to look for more ways to tax you. - Agree to an inconvenient audit.
Contacting previous employers, financial institutions, and others for old tax forms can take a while. Don’t be afraid to request an extension, and if possible, try to meet the revenue agent at the IRS office instead of your home or business. Of course, if you have a field exam, the agent will have to come to you. - Be afraid to ask questions.
IRS agents are human, too. If you think the agent has made any mistakes or is operating under a misunderstanding, feel free to clear things up. Also, in the event of an incorrect assessment, you can challenge an audit through the IRS Office of Appeals. - Be uninformed.
You just want to get this audit over with. Don’t sign documents in your haste to finish; you could be unwittingly agreeing to an extension of the statute of limitations, or signing away your right to appeal. It’s not uncommon for taxpayers to hire a tax attorney or a CPA to look over documents they don’t understand.
