The mail today included a letter from the Internal Revenue Service (IRS) informing you that you were selected for an audit. What now?
About one in 500 taxpayers receive notice of a tax audit each year. You could have been randomly selected or may fall into a category more likely to be audited. Factors that can trigger a tax return audit include the type and number of expenses you take, self-employment, math mistakes and any indication of malfeasance with a return, such as unreported income or inconsistent deductions. Business relationships with previously audited taxpayers can also prompt an IRS audit letter.
Depending on the complexity of a tax return, business or financial portfolio, audits can raise questions that are not always easy to resolve without a clear understanding of the issues involved. At Robert J. Fedor, Esq., L.L.C., we work daily with clients navigating IRS audits. To provide a broad understanding of the process, the firm offers a downloadable resource paper, "The Ultimate Guide to Surviving an IRS Tax Audit." The guide is one of several resources available to clients seeking a clear, in-depth understanding of complicated and anxiety-provoking tax situations.
If you are aware of weaknesses in your return or the potential for discovery of tax fraud, it is important to consider the implications before responding to the IRS. While most audits are civil in nature, information indicative of a tax crime could shift the nature of the audit into a criminal investigation. Preparation is key.
Understanding the audit process
The chances are good your audit will be conducted through the mail. You may ultimately have no real-time interaction with the examiner. Approximately 70 percent of tax audits are handled via correspondence. You could also be selected for an in-person audit at an IRS field office, your place of business, home or your tax attorney’s office. An in-person audit often signals a more focused review of items on your return.
The examiner may request specific documentation or broader background support during the audit. Being prepared requires knowing what records you have and how they relate to the items under review. Organize materials in advance so you can respond clearly and confidently. Commonly requested documents include:
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Financial and bank statements and documents
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Receipts
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Legal documents
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Documentation supporting business or other losses
In person or via mail, your examiner should be polite and professional. If you become uncertain during the process or concerned during an in-person interview, reach out to your attorney for audit assistance. Following the audit, you will receive a 30-day letter from the IRS outlining its findings and the steps available for you to either accept or appeal that outcome.
Knowing what is ahead in an audit and being prepared are key to managing the process and reducing anxiety.
Experienced counsel for IRS civil and criminal tax audits
If you receive an audit letter or have concerns regarding tax litigation or tax crime allegations, call us at 440-250-9709 or reach out to set up a consultation. We serve domestic and international clients from offices in Cleveland and Chicago.
