How
to Survive an Audit!
Copyright 1999, Red Triangle Enterprises, Inc.
There are two things
that taxpayers fear above all else: (1) an IRS audit, and (2) a high income
tax. Audits and taxes are part of life, but with the right information, you can
survive both! If you are audited, the following tips can help:
1. BE PREPARED. Be sure that you
understand the nature of the audit. The items to be examined will be listed on the
audit notice. You will be required to produce documentation to substantiate these
items.
2. LIMIT DISCUSSION OF YOUR TAX MATTERS
TO THE ITEMS SUBJECT TO EXAMINATION AS SPECIFIED ON THE AUDIT NOTICE. Auditors
sometimes ask questions pertaining to areas of a return that are outside of the areas
specified on the audit notice, even though the audit is supposed to be limited to the
items so specified. If this happens to you, politely tell the auditor that you are
only prepared to answer questions about the items listed on the audit notice. (NOTE:
If you are audited under the dreaded "taxpayer compliance program," you
will be asked to justify every item on your return. Be prepared to provide
documentation to back up items of income as well as items of deduction.)
3. BE BRIEF. Answer questions with
a simple "yes" or "no" whenever possible. Keep explanations
short and to the point, and NEVER volunteer information.
4. YOUR ATTITUDE IS IMPORTANT.
Show respect for yourself and for the auditor by being on time for your appointment and by
cooperating in the audit process.
5. THE AUDITOR'S ATTITUDE IS
IMPORTANT. Most auditors are simply doing their job - they are not out to get you!
However, if you are unlucky enough to get an auditor with attitude, ask to speak to
a supervisor. Tell the supervisor that you want another auditor to handle your case,
and state your reason (the auditor is prejudiced, unreasonable, inflexible, or whatever).
Your case is not likely to be reassigned, but your complaint will put the IRS on
notice. In most cases, the auditor's attitude will improve. If all else fails,
you have the right to take your audit result to the IRS Appeals Division.
6. KNOW YOUR RIGHTS. The Taxpayer
Bill of Rights specifies taxpayers' rights under the law. It is explained in IRS
Publication 1, Your Rights As a Taxpayer. You can get a copy of this
publication by calling 1-(800) 829-3676 or by visiting the IRS web site at http://www.irs.ustreas.gov.
7. IT'S BETTER TO LOOK DUMB THAN TO END
UP BEHIND BARS. If your tax return contains a deduction you can't justify, an item
of income that was misclassified, or anything else that improperly reduced the tax
liability on the return as filed, claim ignorance and take your medicine. Don't give
the auditor reason to believe that you knowingly filed a fraudulent tax return (even if
someone else prepared the return). Ignorance is costly, but stubbornness can be
costlier. Tax fraud could land you in jail, and you would still have to pay the
additional tax assessment plus penalties and interest.
8. IF YOU HAVE A HOME-BASED BUSINESS,
USE THE BUSINESS USE PORTION OF YOUR HOME EXCLUSIVELY FOR BUSINESS. Hold
yourself to the highest standard of compliance when it comes to separating the business
use and personal use portions of your home - the IRS will! (If the auditor asks you
where you keep your income tax returns and records, for instance, you had better not tell
him that you keep them in the business use portion of your home! Even though they
contain information concerning your business, they also contain personal income tax
information.)
9. IF THINGS GET OUT OF HAND...
If you start to have the feeling that you are in way over your head, you have the right to
stop the meeting and return at another time with someone to represent you. Don't
hesitate to exercise this right.
10. BEST ADVICE: GET COMPETENT
REPRESENTATION. In an audit, you are at a disadvantage, period. Unless you
are more knowledgeable about tax law and IRS audit procedures than the auditor who is
examining your return, you are basically at the mercy of the system. If you can
afford it, it is in your best interest to get competent representation. (TIP:
Look for an enrolled agent, a CPA, or a tax attorney with experience in representing
taxpayers in audit. This may or may not be the person who prepared your tax return.)
For
information on how to cut taxes legally, visit Red Triangle's Tax Cutting web site at http://www.red-triangle.com/cuttax.htm
now, or write to: Red Triangle Enterprises, Inc., Dept. Cut Taxes Legally, 39040
Hubbard St., Palmdale, CA 93551 USA. |
