IRS, income tax, your tax return — December 01, 2015

When Your Number Comes Up

by Bob Williams

tax audit

At some time in your life, it’s a fair bet you’ll get one of those nice “invitations” from the IRS, telling you you’re being audited. And while there are some definite steps you should take, the first rule of thumb comes from our British friends: “Keep Calm and Carry On.”

You see, you very well may be audited simply because you were picked at random by the IRS’ computers. The Internal Revenue Service does over a million audits every single year, and a big chunk of them are randomly chosen, just to make sure their systems did the right thing with your return.

Others, though, might be chosen because they fit known patterns of fraudulent behavior, or actually contain some sort of error.

Luckily, a lot of audits – no matter why they’re singled out – result in a refund or acceptance of the return as originally filed. If the bottom line swings the other way – you wind up owing tax due, for example – many times, it’s just a small additional assessment. But there are options should the situation be more serious.

Preparation is the Best Defense

In order to be sufficiently armed for an audit, you’ll need all the documentation for the income tax return in question; if you claimed deductions, you’ll need all the paperwork that led you to that conclusion. The letter from the IRS will tell you exactly what is being reexamined, so you can use that as your guide. If the entire return is the target of scrutiny, however, you’ll need all your paperwork available.

And make sure your documentation is organized. Placing a box full of jumbled receipts in front of the examiner as your evidence won’t send the best message for your case.

Many times, the audit is as simple as sending in copies of the supporting documents to the IRS examiner. End of story. Other times, an examination of the return has to be conducted. If that’s the case, you’ll need a representative in your corner.

While you very well may desire to represent yourself before the IRS audit, a “do-it-yourself” approach isn’t always the best tactic. When it comes to an audit, your representative generally must be an attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA). These professionals are permitted to practice before the IRS.

The Enrolled Agent designation may not be as well-known as that of the CPA. For the most part, EAs are tax professionals or former employees of the IRS. Those EAs who didn’t come from the IRS must go through a rigorous testing process in order to receive their EA certification. The EA certification gives them unlimited rights to practice before the IRS.

Expect to pay a fair price for representation. Depending on the circumstances, the stakes may be high, so choose well and get the best representation you can afford.

The examination may be done by mail, at the office of the examiner, at the office of your representative, or maybe in your home. Some tax experts suggest holding the examination in a neutral location, such as your representative’s office, to keep the proceedings objective.

If you cannot get your issue resolved after the examination, the case goes to tax court. You’ll need an attorney at that point – but hopefully the case will be settled long before it gets that far.

For a good overview of the audit system, as well as the appeal process, check out IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.

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