What Should You Do If You Are Facing an IRS Tax Audit?
While no person wants to be the target of an Internal Revenue Service (IRS) audit, there are ways to make the experience less painful – notice we did not say painless. There are essentially three ways that an IRS audit may be conducted: (1) an office audit, (2) field audit or (3) correspondence audit. An office audit involve appearing at the IRS office to produce receipts and other documents responsive to the inquiries raised by the IRS while a field audit involves the agent actually coming to your place of business or home to conduct the audit. The least intrusive form of audit is a correspondence audit where the document requests and responses to these requests all occur by mail. We have provided some key guidelines for reducing the potential risks associated with an IRS audit.
Do Not Encourage a Fishing Expedition: There are usually certain specific questions that an IRS agent will have about your tax return and claimed deductions. It is important to inquire about these specific issues prior to meeting with the IRS agent. The documents responsive to these requests should be identified, isolated and organized. The goal is to ensure that the proof that your claimed deduction is easily accessible so that the audit agent has no reason to engage in a broad search of other documents that may raise issues that did not originally exist.
Do Not Volunteer Extra Information or Documents: While you are legally obligated to provide documents that substantiate the information in your tax return, this does not mean that you should produce more than is requested. The documents you provide should be precisely what is requested and nothing more. Non-responsive information will not help you obscure missing information but could open up new areas of inquiry.
Prepare for the Audit: When you receive notification of an audit from the IRS, you should both consult with the accountant or tax preparer who helped you prepare your return as well as an experienced tax attorney. They can provide insight into the specific issues raised by the IRS and advise you about specific actions to take or avoid. While you are not required to have a tax attorney present, this may be a cost-effective decision is you believe you may be facing substantial additional tax liability or even criminal liability. If you need more time to located documents for the audit, you should request an extension rather than show up without the requested documents.
Responding to Questions during an Audit: While the best alternative is to have an experienced tax attorney who can influence the scope of the audit and help you avoid potential tax liability traps, you should be careful how you respond if you are not represented by counsel. The answers you provide should be concise and brief without volunteering any extra information. If you have a feeling that the audit is going poorly, you should not hesitate to ask for a break to consult your tax attorney or accountant.
If you are facing an IRS tax audit, you should contact experienced tax attorney Paul Grego. We offer a free initial consultation so that we can evaluate your situation and explain your options. Call us today at 504-302-4949 or email us.