By Matt Luckmann, CPA
Receiving an audit request from the IRS can, understandably, cause your blood pressure to spike. But there’s no need to panic—it doesn’t necessarily mean you did something wrong. Here’s a quick look at why you might be selected, and what you should know if you are.
First, let’s talk about why you might receive such a notice. Generally, there are two reasons you could be chosen for an IRS audit:
The IRS uses software to randomly screen and select tax returns based on a statistic formula.
Relation to audited business or individual
If your business or business partner is being audited, it’s likely the IRS will choose to audit you, too.
Now that you know you shouldn’t panic, here are a few things you should do:
Keep your records organized.
If you’re selected for an audit, it’s likely the IRS will ask you to provide documentation to support the income and deductions reported on your tax return that could stretch beyond what you provided to your tax preparer. Having your records readily available and neatly organized will help the audit process go as smoothly as possible. It’s also important to retain your records for the appropriate amount of time.
Expect the audit to happen by mail or in person.
The IRS will notify you that you are selected for audit through mail only—never by phone. From there, you can request the audit to be done either by mail or through an in-person interview. You have a few options for the location of the in-person interview: the IRS office, your home or place of business, or your accountant’s office. The auditor will send you a list of requested information to mail in to the IRS or have available for the in-person interview. The auditor will keep the documents provided and review them further after the in-person interview, and possibly send a request for additional information.
Work with and not against the auditor.
Do your best to provide everything the auditor has requested. And be kind – the auditor is a person. It’s wise to be honest with the auditor, too. If something on your tax return is questioned, provide an accurate answer. If something is wrong, bring it to the auditor’s attention.
After the audit, relax!
An IRS audit can take up to six to nine months to complete, so don’t fret if you don’t hear back from the auditor right away. If the auditor agrees with your tax return, you’ll receive a “no change” report, meaning your return is compliant. If the auditor disagrees, they will propose changes. If you disagree with the auditor’s changes, you can request further discussion and, if necessary, a meeting with the auditor’s manager.
Remember, the best thing you can do if you’re facing an audit is to not panic. Get your ducks in a row, prepare for the process, and work with the auditor as much as possible. And know we’re here to help at every step.