IRS Audit Representation: What is an IRS Audit? How Should You Respond Strategically?

This just might be the scariest phrase in the English language: IRS audit.

But what is an IRS audit, exactly? Should you be scared or anxious? How should you respond strategically? Below, we’ll explain how to protect yourself against the IRS and reclaim your sanity.

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Definitions and Background

When the IRS reviews your tax return to verify your income and deductions, the agency looks for “red flag” elements that suggest that something about your return doesn’t make sense or doesn’t add up. We came across an interesting article in Forbes regarding 15 Ways to Invite an IRS Audit, disclosing some of the red flags. To obtain clarity about the situation, the IRS can choose to probe your finances in greater detail via mail, an office visit or a field audit.

About 75 percent of IRS audits are conducted by mail. In this scenario, you first speak with an auditor on the phone. This person will ask for additional information about your tax return. For example, if you claimed $15,000 in charitable donations, the IRS might request specific proof that you made this donation. Assuming you have appropriate documentation, once you submit such proof, the IRS will usually close your case.

In an IRS audit in an office, you need to speak with an auditor at the IRS office. You have the right to legal representation at the meeting.

A IRS field audit means that the IRS will come to your home or business to assess your financial picture. These audits tend to be the most involved.

Effective Strategies to Respond to an IRS Audit

If audited, strongly consider taking the following proactive measures:

  1. Respond to the notice that you receive in the mail. Usually, the IRS gives you 30 days to reply.
  2. Provide the listed information. The IRS will want you to give the agency supporting documentation to back up your claims. If any information is missing, get copies.
  3. Organize your tax records. You want the auditor to see that you have kept track of your financial information.
  4. Do not offer extra or superfluous records. They will simply muddy the process.
  5. Respect the authority of the compliance officer. He or she should have significant experience, so if you plan to argue with him or her, you will need to know the law.
  6. Be respectful. You will not win any points if you are rude.
  7. Do not give the IRS original documents. Ask for copies if you need to take in the originals.
  8. Limit your answers to the questions asked. If you add unnecessary information, the auditor might broaden the scope of the investigation.
  9. Know your legal rights. You can request an appeal, for instance.
  10. Retain professional help. Don’t try to handle an IRS audit on your own. Our office can help you. For further assistance, call us to schedule a free consultation at 720-398-6088.