Personal Tax Audit? Here’s How to Handle It With Confidence
If you’ve been selected for an IRS audit, don’t panic — preparation is key. Start by carefully reviewing your tax return, either with the professional who prepared it or, if you prepared it yourself, with an experienced tax advisor. The goal is to identify potential problem areas and gather the information needed to explain your filing to the auditor.
Audits can take place by mail, at an IRS office or in person at your home or business. Whenever possible, avoid hosting the audit at your home or business, as this can increase scrutiny. Field audits often result in higher adjustments (an average of $17,000 compared with $4,000 for in-office audits).
If you need more time to prepare for the audit, requesting a postponement is usually a smart move.
Understanding the audit
The type of audit you face determines its scope. Mail audits are limited to the specific items mentioned in the IRS letter, while office and field audits will examine your return more broadly. For any audit, gather all requested documents, organize them by deduction category (e.g., rent, travel, utilities) and ensure the totals align with your return. Be ready to explain any differences and to provide supporting evidence.
For mail audits, provide a complete response to the IRS’s questions in your correspondence. For in-person audits, bring all requested materials to the meeting and present them in a clear, logical manner. Stick to the facts and provide only what is asked for to avoid introducing unnecessary complications.
If you receive an Information Document Request, which asks you to provide specific documents or information to verify the accuracy of your tax return, respond fully and on time. If the IRS disagrees with your deductions or income reporting, prepare a detailed explanation supported by documentation. In cases where proof is missing, work to reconstruct your records through third parties or affidavits.
When discussing potential disallowances with the auditor, focus on clarifying the tax issues rather than negotiating the amount owed. Keep your responses concise and professional — auditors often uncover issues when taxpayers volunteer unnecessary information.
Closing the audit
Once the IRS completes the audit (usually within one year), it will either propose no changes or recommend adjustments to your return. It is likely that you will owe additional taxes. The report and letter you receive will explain the findings and adjustments. If you agree, pay the amount owed. If you disagree, you have 30 days to appeal the decision with the IRS Office of Appeals. This office operates independently of the audit process and aims to resolve disputes without going to court.
If you do not respond to the so-called 30-day letter or if your appeal within the IRS is unsuccessful, the IRS will issue a Statutory Notice of Deficiency. This formal notice gives you 90 days to file a petition with the U.S. Tax Court to dispute the IRS’s findings. You will not need to pay the additional tax that the IRS believes is due until a judge has heard the case and reviewed the evidence.
To understand your rights, consult IRS Publication 17, Your Federal Income Tax (for Individuals), and Publication 1, Your Rights as a Taxpayer. Throughout any audit, working with an experienced tax professional can greatly improve your chances of a favorable outcome.
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