In a previous blog post we covered the more common way that the Internal Revenue Service (IRS) performs tax audits, which is an audit by mail. The other, less common form of IRS audit is an in-person audit. Your chances of being audited, through the mail or in person, have declined each year, as the IRS is not doing as many audits. In 2017, less than 1 out of every 167 returns was audited, and of those audits the majority are now mail audits.1
There are several criteria to keep in mind upon notice of an IRS Tax Audit and they are for your own safety.
If you receive a phone call about an IRS tax audit, and have not received any official IRS correspondence through the mail about an audit, do not provide the caller with any of your personal details. The IRS never conducts tax audits over the phone.2 You will first get an official letter from the IRS by mail. This letter will explain what type of audit the IRS will conduct. It will also provide information on what part of your return is being examined and what information you need to provide, as well as other details about the audit.
The IRS may follow-up with a phone call to you after the initial letter has been sent.3 Be cautious in establishing that the person on the phone is an actual IRS employee. For example, do not provide information, like your social security number, which an IRS agent should have on file.
Audits done through an in-person interview would either take place at an IRS office location or at a place you choose (called a field audit). This could be your home, your office, or the office of your accountant or tax preparer. You call the IRS office designated in the letter you receive and make the arrangements regarding the time and place of the audit. After making the appointment, it is time to get prepared for the audit.
Carefully read the Information Document Request that was sent with the initial audit notification. This will provide you with important information on what areas of your tax return the IRS plans to review. Review your tax return and pull as many tax records and receipts as are available. Make sure these documents are organized and you can explain them in a satisfactory manner. Research anything that you are not sure of in order to provide satisfactory explanations to the IRS auditor. IRS auditors have a certain amount of discretion in making decisions, and being honest and professional often speaks well of a taxpayer’s credibility.
That said, however, it is best to answer auditors’ questions directly and succinctly without offering additional information so you do not provide the auditor with openings to investigate other areas of your tax return.
There are certain situations where it would be prudent to hire a tax professional to provide advice prior to the audit and/or to represent you during the audit. Some of these situations include issues such as no longer having the documentation requested by the IRS; not being able to adequately explain income or deductions; not knowing or understanding the specifics of how your tax return was prepared; and just an overall feeling of unease with the audit process. Certified public accountants, attorneys and enrolled agents of the National Tax Practice Institute are all permitted to represent you before the IRS in a tax audit.4 It is a good idea to also consult your tax professional because they can often analyze what the IRS is focused on and advise you on whether you should have representation when meeting with the IRS. You don’t actually have to attend the audit. You can designate a representative to act on your behalf.5
In the initial meeting with the IRS auditor, you will be interviewed and asked about your financial history, business operations (which can include a tour by the agent to better understand your business), books and records. You have the right to stop the interview at any point to obtain professional assistance or speak to your representative.6 Once the initial review is completed, the IRS will do one of three things: they will accept your original return as filed; they will ask for more information in writing; or they will propose changes to your tax return based on their findings. These changes can run the gamut from payment of additional taxes and penalties, to liens on property, fines, garnishment, criminal investigations and court hearings.7
In any case, an IRS Tax Audit can be extremely overwhelming and intimidating, and you need to be prepared. As a taxpayer, it is your right to have legal representation present, you do not have to go through it alone. Having the advice and assistance from a tax attorney will alleviate stress and safeguard your rights.
Our Tax Dispute Lawyers are extremely knowledgeable in the local, federal and state tax codes with over 20 years’ experience. If you are facing a tax dispute, tax audit, have tax concerns or need to resolve other pending tax issues call our Tax Resolution Law Firm today.
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2 IRS Audits, www.irs.gov
Link: https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits
3, 6 Audits in Person, www.irs.gov
Link: https://taxpayeradvocate.irs.gov/get-help/audits-in-person
4, 5 A Tax Audit Success Story and Tips from Audit Experts, by William Perez, 1/7/2019
Link: https://www.thebalance.com/irs-tax-audit-stories-3193350
7 Field Audit, www.investopia.com., reviewed by Will Kenton, 4/9/2018
Link: https://www.investopedia.com/terms/f/field-audit.asp
