Preparing for an IRS Audit When Your Records Are a Mess

Nothing may make your heart pound and your head throb like the notice of an IRS audit. Even if you know the precise location of every form, receipt, and file folder, an audit can have negative financial implications that affect you for years to come. But what if your tax records are in less than perfect order—they’re just stuck in shoeboxes and dresser drawers? Here’s how to begin.

Contact a Professional

When you work with a CPA, tax attorney or Enrolled Agent from the very beginning, your stress should decrease. Tax professionals understand the law. While tax code language seems unintelligible to most people, it’s familiar language to professionals. Similarly, they have experience working with auditors, so what is new and frightening to you is routine to them: They spend every day helping people in your situation resolve problems with the IRS, so they’ll know the best way to proceed.

Gather Documentation

Your IRS letter will indicate the tax returns being audited. During an audit, the IRS has the right to examine any records you used to calculate your debt or return. Therefore, you’ll need checks, receipts and any other documentation that backs up deductions you claimed. You’ll likely need bank statements for personal and business accounts. Often financial institutions only make the last six months available to download and print, so you may have to request older records to be sent by mail.

Small businesses don’t have to keep formal books, but you’ll need to prove transactions with your checkbook, cash register tape or other means. You’ll also need other documents including:

  • Auto records
  • Lists of all property (including office equipment and inventory)
  • Logs and appointment books
  • Travel and entertainment expenses

Submitting Messy Records is a Mistake

Some people advocate handing the IRS a jumbled mess, thinking that the agent will have less time to make sense of it all, and may miss any errors you have made. However, this approach is wrong. It damages your relationship with the person in charge of evaluating you. Agents already have a heavy workload, and, if you increase it, they may be less willing to work with you to come to an agreement.

If your records are a mess and you’re facing an audit, Highland Tax Group can help. Work with a professional who’s on your side and can reduce your risk of getting hit with high back taxes and fees. Contact us to receive expert advice today.