What to Expect From an IRS Audit

During an audit, the Internal Revenue Service conducts an examination of a person’s or business’s accounts and financial records to check for compliance with the tax codes. Selection does not mean that an error was necessarily made, only that the IRS wants to verify or gather additional information. IRS Publication 556 fully details the audit process and what to expect.

The Audit Process

The IRS selects taxpayers to audit in several ways — some random and some targeted. Upon selection, the IRS notifies the tax payer by letter. In some cases, they call before sending the letter.

An audit may either be conducted by mail or in person depending on what information the IRS is seeking. An in person audit may be scheduled at home, in your office or place of business, or at an IRS office. IRS agents are instructed to be flexible when scheduling an audit, but maintain the final say over when and where it is held.

You may choose to attend alone or with representation. Authorized representatives may include attorneys, Certified Public Accountants, or other individuals properly registered with the IRS. You will need to sign an authorization allowing them to represent you and receive confidential information from the IRS.

Before the audit, the IRS will notify you what documents to bring. They will often also make proposed changes to your tax return. The time an audit will take depends on the complexity of the matter. An obvious mathematical error may lead to a quickly agreed to resolution, while a business taking a large number of deductions may come under heavier scrutiny and a more in-depth look.

There are three possible outcomes to an audit. First, the IRS may be satisfied with your records and your tax return may be unchanged. Second, you may agree to changes proposed by the IRS and to pay the difference. Finally, you may disagree with the proposed changes and the case will be escalated to a manager, mediation, or appeal.

Tips to Survive an Audit

• While you do not have an absolute right to silence as in a criminal investigation, you also do not need to volunteer additional information. Give short, direct answers to each question. Don’t stonewall or evade because IRS agents are trained that those are signs the taxpayer has something to hide and will dig deeper.
• Remember the IRS agent is not your friend. They are trained to be professional and to answer your questions, but this is more than just being nice or wanting to improve their image — it’s also a tactic to get people to open up to them.
• Be prompt. Ignoring IRS notices, missing meetings, or other delay tactics may lead to increased penalties either for late payment or because the IRS decides any errors were more than a simple mistake.
• Make your case if needed. The IRS is not always right and the tax code is sometimes vague. If a significant amount of money is on the line and you believe you acted in good faith, hire professional help and don’t be afraid to appeal.