If You’re Getting Audited By The IRS, What Should You Do?

1. Get representation: Representation can help bring a calm and experienced approach to the audit process. You’ll know what information you need to gather for a clear response.
2. Understand the audit: Review the audit with a professional to understand why you’re being audited, the scope of the audit, and the type of audit.
3. Gather what’s needed: Collect all relevant documents that support your tax returns for the years in question. This includes receipts, bills, invoices, mileage logs, canceled checks, legal papers, and any other records that justify the entries on your tax returns.
4. Go into the audit: Address all IRS communications in a timely manner. If you have an in-person audit, organize your documents logically and prepare to explain how your tax return was prepared. Stick to the facts and provide direct answers to the auditor’s questions.

Are You Going To Owe Money?

Getting audited does not guarantee you will be penalized: if you’ve been honest in the past and are organized in your response, there’s nothing to be afraid of.

Possible outcomes are:

• No Change: If the auditor finds that all information on your tax return is accurate, they may conclude the audit with no change. Your tax return is accepted as filed.
• Agreed: If the IRS proposes changes to your tax return and you understand and agree with these changes, you sign an agreement form provided by the IRS. Payment arrangements can typically be made if you owe more than you can pay at once.
• Disagreed: If the IRS suggests changes that you believe are incorrect, you have the right to disagree. This can lead to further discussions with the auditor or their manager, or you may file an appeal if you cannot reach an agreement. This process might involve more detailed substantiation of your tax return entries or bringing in additional evidence or professional advice.
• Substantial Understatement Penalty: If the audit finds a substantial understatement of income (20% or more), the IRS may assess a penalty on the understatement in addition to the owed taxes and interest. This is intended to deter under reporting and encourage accurate tax reporting.
• Negligence or Fraud Penalties: If errors on your return are deemed to result from negligence or intentional fraud, further penalties can be applied. Negligence might include a penalty of 20% on the portion of the underpayment due to negligence, while fraud involves more severe penalties, potentially including criminal charges.
• Refund or Credits: In some cases, the audit may find that you overpaid your taxes, entitling you to a refund or credits toward future taxes.

Hiring representation maximizes your chances for a successful outcome. 

Harsin Advanced Tax Planning can take you through this process calmly and with expertise to protect you from the IRS.