According to the IRS: “An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.”
If your personal or business taxes are about to go through an audit, here are the first steps you need to take to ensure that you come out on top:
Contact Your Accountant
If your taxes and other finances are handled by an accountant or bookkeeper – either on-staff or outsourced – you need to get in touch with them and explain the situation. The IRS will provide you with a list of the specific financial documents it needs in order to complete its investigation. Forward that list to your accountant, and make sure that the transfer of files to the IRS takes place in a timely manner.
- You are required to retain the records used to prepare your tax return for three years from the date the return was filed. So, if you have been thinking about clearing out your file cabinets, remember to keep everything from 2009 forward.
- If you retain some records electronically – often the case when you use accounting or tax software in lieu of a real person – the IRS may or may not accept them. Let your auditor know which records of yours are electronic, so that they can speed up the process of transferring the records from your software system to theirs.
Contact a Tax Attorney
A tax attorney can help ensure that the audit process goes smoothly and ultimately ends in your favor. Be sure to hire an attorney that is familiar with the local tax law, as well as state and federal. For example, if you live in San Diego, don’t send out to LA for the attorney your cousin uses. Hire a tax attorney in San Diego to make sure they have all the local knowledge they need.
- Upon the completion of the audit, the auditor may recommend no change – i.e., absolve you from any further tax responsibility. Or, they may find that you owe taxes.
- Discuss the result with your tax attorney. If you agree with the findings, you will be held responsible for the owed taxes. If you disagree with the findings, you may request a further review of the issue, a Fast Track Mediation, or an Appeal. Your tax attorney can walk you through the process smoothly.
The most important step in the audit process is not to panic. Just because you’re being audited doesn’t mean you made a mistake – or that you’ll be held liable for mistakes you never made. The process for selecting who gets audited varies.
- Some returns are selected for audits completely randomly based on statistics or computer screening, and don’t necessarily indicate that an issue exists.
- If there is an issue with payer records, such as documents not matching current records, there may be an audit instigated.
- If one of your business partners or investors is currently being audited, you may be subject to an audit in order to ensure the instigating audit is as thorough as possible.
If you find that your personal or business finances are being audited, that doesn’t spell disaster. Simple mistakes can be fixes, back taxes can be paid in installments, and a tax attorney can ensure that your rights and interests are protected every step of the way.
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