An envelope from the IRS arrives, and instead of the big refund check you’d hoped for, it bears a gravely written letter laden with the dreaded A-word. That’s right: Uncle Sam has selected you for an audit.
While it’s news that no one wants to hear, it’s not the end of the world. Here are six tips to keep in mind if you find yourself spending quality time with an IRS auditor:
- Have your records handy. The IRS will want to see proof of expenses that resulted in big deductions. They will also seek evidence to support the income figure you reported on your tax return.Agents will examine not only big-ticket items like leases and loan agreements, but also meals and travel expenses.
“If you’re expensing a meal, you should have an appointment calendar that shows whom you met with and why, and a receipt that shows how much you spent and where,” said Scott Berger, a tax principal with the Florida-based accounting firm Kaufman, Rossin.
- Get to the point. Most audits take place through the mail, but if you’re unlucky enough to get an in-person IRS visit, make sure to answer only the questions agents ask.Dennis Raible, a Saint Joseph’s University accounting professor and former IRS auditor, said it’s best to stick to what’s in front of you when you’re dealing with an auditor.
“You don’t want to really elaborate too much – just give a direct answer,” Raible said.
Raible recalls during his IRS days times when a taxpayer under audit would volunteer extra information.
“Then it’s like, ‘Oh, great, something else I’ve got to look into’,” Raible said.
- Get it in writing. An audit meeting is often a long slog through tedious financial documents. It is wise, Raible said, to request the auditor send you a letter or email outlining what documents the agency still needs and which questions it still wants answered. At the end of the day, it pays to be sure of the exact issues on which the IRS requires resolution.
- Be patient. An in-person audit meeting can take a while.
“It generally lasts two to four hours,” Berger said, “with you sitting there spoon-feeding [the IRS] pieces of paper.” Showing the auditor respect helps, Berger said, as does making sure your records are well-organized.
- Have records from past years handy. Even if the IRS focuses only on the most recent tax year, Raible said, they may want to see records from past years, as well. He added that agents scrutinize big changes from year to year, like increased personal use of a business’ car or new personal coverage within a business’ insurance policy.
- Don’t be afraid to say, “I’ll get back to you.” If you don’t know the answer to an auditor’s question, don’t guess. Instead, tell them you’ll look it up or check with your accountant, Raible advised.
Audits are never pleasant, but they need not be nightmares.
Keith Hall, a tax advisor for the National Association for the Self-Employed, said in a statement that an audit doesn’t necessarily have to be a painful process.
“As long as taxpayers dot their I’s and cross their T’s when preparing their return, then there is no reason to worry about an audit,” Hall said. “It’s possible that you might even get a refund.”