1) Determine if this is an IRS Field, Office or Correspondence Audit
With a Field Audit, the audit will be done at your place of business. Most taxpayers requests that the audit be moved and done at your CPA’s office. The auditor however still has the right to visit your office.
In an Office Audit, the audit will be done at the local IRS office. You get to go see them.
In a Correspondence Audit, everything is done through the mail.
2) Give Your CPA a Power of Attorney
You will need to give your CPA a Power of Attorney if you want them to represent you in the audit. Unless it’s a simple correspondence audit where you need to send in some basic information, you will want your CPA to represent you.
3) Gather up All of Your Records
As you would suspect, documentation is the name of the game. As an attorney explained to me once, “There’s nothing like a good set of facts to support your case.” Well said.
4) Respond to the Auditor Promptly
The auditor has a job to do. Show them some respect. Reply promptly to their requests. This will keep the process moving and get everyone to the finish line sooner. No one wants to drag these audits out.
5) Follow up on the Auditor’s Information Document Request (“IRD”)
There may be some documentation that you can’t produce immediately. The auditor will leave you with an IRD. This will document what the auditor needs and when they need it by. As mentioned above, respond to the auditor as promptly as possible. If you are having difficulty obtaining old records, ask for an extension of time to reply and state why.
6) Evaluate the Audit Results
When the auditor is done, they will issue their report. Typically, the best result you can get is ‘no change.’ Its possible deductions were missed and the IRS owes you money. If this is the case, it’s time for a new CPA!
If the results of the audit indicate additional taxes are due, you will need to evaluate the results. If you agree, you will owe the tax assessed, interest and possibly penalties. If you don’t agree, the first appeal is to the auditor’s supervisor.
ACTION ITEM: Taxpayers should take these 6 Easy Steps to Navigate an IRS Audit to Save Tax Money.
Give us a call at (860) 646-2465 if you need assistance with an IRS Audit.
Thomas F. Scanlon, CPA, CFP®
Photo From Creative Commons