IRS Audit and Examination Resolution

The IRS accepts many tax returns as they’re filed. Yet, they select some tax returns for further review or audit to determine if you reported your income, expenses, and credits correctly. It is important to know how to approach an audit, understanding how to avoid the IRS from looking at additional information and how to keep the financial impact of the audit to a minimum. Below you’ll notice some advice on how to survive an IRS audit and come out with the best possible outcome. Your cooperation or lack thereof, actually does make a difference.

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Tax Service Masters assists individuals and businesses dealing with tax discrepancies, tax balances, and tax problems of any kind at both the Federal and State level.

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Our licensed tax professionals serve residents in all 50 U.S. States as well as foreign residents and nonresident aliens with delinquent taxes, tax penalties, tax liens, bank levies, wage garnishments, payroll taxes, back taxes, tax amendments and more.

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I’m Being Audited, What Now?

If chosen for an audit, you have no choice in the matter but to see it through. Your main goal before, during and after an audit should be to minimize the monetary effect and more importantly… to prevent the IRS from probing beyond the initial items selected for audit.

Read the letter that outlines the reason for the audit, and follow the instructions. The letter and attachments will explain the information regarding the audit. If you have any questions or are uncertain what you need to provide, contact the examiner. Or make a decision to contact and work with a licensed professional that specializes in Tax Resolution. Not all Enrolled Agents, CPA’s and Tax Attorneys have experience in your type of case, so shop around. For experienced audit resolution, contact us or book an appointment.

How Can I Be Sure I’m Being Audited?

There are two ways taxpayers are initially notified of an audit – by mail, or in person. IRS employees conducting audits may call taxpayers, but not without having first attempted to notify them by mail. 

  • Avoid audit tax scams by checking the piece of mail and the phone number for validity to start with.
  • If the phone number on the piece of mail does not belong to a phone number on IRS.gov or a State Dept. of Revenue, start being suspicious. Call the IRS official 800 number or hire a licensed enrolled agent, CPA, tax attorney to investigate.
  • Watch for mail that tries to redirect you anywhere except IRS.gov or the State Department of Revenue.

When selected for an audit, if notified by mail.  The notice will tell you:

  • What part of your return is being examined.
  • The information you need to provide; and
  • Other details about the audit.

If you suspect tax fraud, follow this link for further information.

All Audits Are Not the Same

If the IRS selects your return for an audit (aka examination), it doesn’t necessarily mean something is wrong. Once the IRS completes the examination, it may accept your return as filed or propose changes. These changes may affect the amount of tax you owe (a proposed deficiency) or the refund amount.

Where Do Audits Normally Take Place?

An in-person examination can take place in a taxpayer’s home, your place of business, an IRS office, or the office of your attorney, accountant, or enrolled agent (a person enrolled to practice before the IRS). If the time or place on the notice isn’t convenient for you, the examiner will try to accommodate you.

What If I Don’t Agree with the Audit?

If you don’t agree, appeal the audit. It is your right to appeal an audit examination report, but you most likely have a response time constraint, so don’t wait until the last minute.

The best way to start your disagreement is by calling the auditor and explaining why you don’t agree to the decision. If you are having trouble making your point then you can choose to meet with their manager, appeal with the IRS, or go to tax court. It is usually best to have, and present facts.

In most cases a good tax resolution company will achieve a better outcome. Think about hiring a tax professional. The right tax pro can represent you before the IRS. A qualified tax professional who specializes in tax resolution or audits is aware of IRS procedures, and can help you navigate through the process, file the correct forms and prepare formal responses.

More on this topic can be found below: https://www.irs.gov/appeals/preparing-a-request-for-appeals

Dealing with Tax Auditors & Examiners

Keep a few things in mind about the examiner(s) / auditor(s) you’re working with before beginning to open the lines of communication.

  • Auditors have a considerably stressful workload and the job entails speaking with people that are most times furious and resent that they are being audited in the first place. Try to keep a level-head around the auditor and realize that most auditors just want the examination to move along smoothly and come to an end, or in our term resolution.
  • Examiners are trained to keep their ears and eyes open for details that just don’t seem right, which means anything new you reveal to them in addition to what was asked for, can be used against you.

In conclusion, being cordial (even under the circumstances) can go a long way, but just be aware that the auditor is examining your return or previous returns foremost.

What Is Not Advised During an IRS Audit?

Don’t make an obvious lie or make misleading statements, especially if you know the question can be traced to something recorded.

The IRS may even ask questions they already know the answers to, just to see how much you can be trusted. It is best to be honest, and build a good first impression rapport, but do not ramble on and offer unneeded information, in other words don’t say anything more than is required. For example: if you are asked “what color is the sky”? The answer is “blue”. Not “blue, with a chance of rain and precipitation”.

During the Exam

You, the examiner, and your representative (if you have an EA, CPA, attorney, accountant, or other eligible person with you) will meet for an initial interview. The interview will cover information about your financial history, business operations, and books and records that aren’t available from other sources. The examiner’s questions will help him or her understand the records you provide.

In the event you don’t have a representative, the interview can be suspended at any point you wish to attain professional assistance or speak to a representative. Keep in mind, it’s best to cease the moment, as rescheduling will hinder the time it takes to find solvency. If you are at all intent on swift resolution, be prepared.

How Do Audit’s Typically End?

Every case is different. In some cases, there’s been times when a taxpayer is awarded a refund, and even an apology letter (this is uncommon, actually happened and is plaque worthy) or owes nothing more after the audit, but in most cases, be prepared to owe money.

Make Copies and Keep Originals

Give copies of documents to the auditor and keep originals. The IRS loses and misplaces documents on a regular basis.

Know how the IRS Views Substantial Compliance

If you can’t provide or come up with all the required documentation to back up proof of your deductions, try to demonstrate that you have sufficient proof that you did follow IRS tax laws, but your documents and organization are lacking, they may allow the deduction to be taken. After all, files do get misplaced, no one or entity is perfect.

Managing Auditor Relations

Every auditor is different, managing the short-lived relationship is of basic importance. If you notice you’re not making any headway with the auditor assigned your case, below is a few ways to turn the dial.

Request another Auditor (Not Commonly Granted)

Ask to speak with the auditor’s manager. When speaking with the manager explain your side, and that you believe you’re not being treated equally and if possible, would like to work with someone else. Most likely, your request will not be given, but by speaking with another party you may have invoked a discussion between the manager and auditor, you may see the tone of the audit change (hopefully for the better, not worse).

Delay the Audit

Some auditors do not like delays because many times their performance is based on cases that they close. Some collection officers’ pay is even determined by what they collect. If they know you are going to cause a delay, they can possibly lighten up a bit to allow the audit to move forward. To delay, you can ask to reschedule and pick it back up later. If they won’t allow a reschedule, you can then say you prefer to talk with a tax professional before going any further with the audit. If you request professional help, the auditor must legally grant your request.

Record the Audit

You are allowed to record your audit with the IRS if you let them know in writing ten days ahead. When the auditor knows all meetings are being recorded, this can construct a professional environment. If you are looking for a licensed tax professional to help with a tax audit, review this list of tax professionals who have experience resolving IRS audits. Alternatively, start your own search below and click “audit or examination” under the filter on the search page called “IRS Problem Experience.”

More about the process and basic taxpayer rights can be read here: https://www.irs.gov/pub/irs-news/fs-06-10.pdf