One of the greatest fears of most taxpayers is the idea that the Internal Revenue Service might audit them. I have prepared taxes for well over 20 years, and one of the most common requests is: “Please keep me from getting audited.” The preparer does not control that. The IRS screens returns and uses an internal computer program to determine who may or may not be audited.
The first thing that will happen is the taxpayer will receive a letter saying that their tax return for a certain year is being audited. Usually this will be on a return that was filed two years or more in the past. Currently the most common type of IRS audit is what is known as a correspondence audit. In a correspondence audit, the IRS asks that you mail in all of the proof of the items for which they have asked. When receiving a correspondence audit, it is usually best to contact a professional immediately as it may not be in your best interest to respond to this as a correspondence audit because you have the right to ask for a face-to-face audit.
In actuality, the IRS does not conduct very many face-to-face audits. In the case of a face-to-face audit they will meet you at your home, place of business, or have you come to the local IRS office. If this is the case, when working with the IRS you want to act in a professional manner and have your documents that have been asked for ready to be presented in a very professional manner. Normally, if the IRS has requested to meet you at your home or place of business and you hire a professional, the professional will request to have that audit moved to his or her place of business.
The IRS will examine all areas of the tax return on which it has requested information. You only want to present information that pertains to the situation. One of the reasons to hire a professional is that the professional will be schooled in what to say and how to present your information. You can cause the IRS to open other areas of your tax return by saying something that makes them suspect there are issues in other areas.
Depending upon what the IRS is examining, an audit can take a few hours to several weeks. The IRS auditor working the audit is supposed to be professional as well. If you run into an IRS auditor that is not being professional, you always have the right to ask for a supervisor, and if the supervisor does not act professionally, you can then ask for that person’s supervisor. When the audit is completed, they will present you the results of the audit and you can choose to pay it or appeal it. Appeals can be very complicated and will take you some time to be able to present accurately.
One of the most common fears in an audit is: do I have all of my receipts for various expenses that have been claimed on the tax return. That could be an important concern, but you also have to really think outside of the box. Maybe you do not have all of your motel receipts, but you travel all of the time for business and stay in the same motel all the time. You could go back to the motel to ask for listings of their room rates and recreate what was claimed for the return in question. Maybe you do not have a receipt for some advertising that you have done, but you know where you advertised. Go back to that advertiser and ask them if they have any information on the advertising that was done. You have to be willing to really work on your situation.
A tax professional who works in these areas will have a lot of strategies and different experiences with how they want to deal with these items. It is probably one of the biggest reasons why when the dreaded audit letter comes you will want to hire a professional to represent you in an audit. Always remember that you are entitled to a representative in any IRS situation. That representation can be an Enrolled Agent, Certified Public Accountant, or an attorney. FBN
By Jeff Augenstein
Jeff and Roxanne Augenstein opened Northern AZ Financial Services, located at 2519 E. 7th Ave., in Flagstaff, in May 2003. For more information, visit www.northernazfinancial.com or call 928-526-3999.