Being audited is one of the most stressful and dreaded experiences a taxpayer can go through. It’s a wonderful blessing to live in America, and paying taxes comes with that privilege, but enforcement is a reality.
Sometimes our actions will increase our chances of an audit (see my article Top 10 Ways to Avoid an IRS Audit), but sometimes our ‘number just comes up’. It’s difficult to grasp this reality because we typically want to blame someone when a tragedy hits…like an audit…however again, sometimes the IRS is simply going to check your numbers and possible receipts.
Whatever the case may be or the reason for you being audited, there are certainly some things you can do that will help you through the experience. Adhering to the following tips and advice will either help the audit progress more quickly, lessen the damage and possibly even encourage the IRS to drop their inquiry. Please take them to heart.
- Don’t ignore the IRS, their letters or notices. I have met so many clients coming to my office in distress because they finally realized the IRS wasn’t going to go away. They had hoped if they ignored the letters and demands for payment the IRS was simply going to give up. They were wrong, in fact, they made things worse. When you don’t reply to the IRS, they assume the worse and actually increase their scrutiny and it makes your situation far more serious. Is it even worth saying? Don’t ignore the IRS, get help and respond as quickly as possible and don’t miss any deadlines.
- Be courteous and kind. Believe it or not, IRS agents and representatives are people too. If you treat them rudely, it’s not going to help. This isn’t your opportunity to vent about how much you hate the IRS or the government. If you personally attack or offend an IRS agent, I promise you they’re not going to drop the case or audit until they have made your experience miserable. Regrettably, it can be a version of payback for your lack of respect. Don’t go down this path.
- Build your case. Don’t think your audit will just solve itself. More importantly, don’t assume the IRS is going to do the work for you. If you don’t provide support for your numbers or arguments, it’s not going to happen mysteriously on its own. Dig up receipts, statements, emails, bank statements, credit card statements, anything.
- Be organized and a lot of information. More is better. Nothing is irrelevant and deluge the IRS with pertinent information. But don’t just throw the IRS information in a ‘shoebox’. They won’t organize it for you. Get binders, boxes, envelopes, whatever it takes to make it easy to understand and decipher. Along with your respect, this tactic will go a long way in getting your audit resolved quickly and with less damage. This technique is what earns points with an agent.
- Get professional help and asap. Don’t think you can take on the IRS by yourself. I swear every year my partners and I joke about and bemoan ‘bad’ cases decided by the Tax Court. The cases with the worst decisions are those where the taxpayers defended themselves. Yes, you might be able to prepare your own tax return, if it’s generally simple, but fighting the IRS is a whole other matter. Now with that said, don’t get sucked into a huge upfront fee from a big firm, or even worse: working with a non-licensed know it all that’s cheap. Pay as you go and also realize that you get what you pay for.
- Don’t stress. An IRS audit will consume you if you let it. Remember, that as long as you weren’t cheating on your taxes or blatantly deciding not to pay your bill, you’re not going to go to jail. However, you can get on a payment plan OR cut a deal with the IRS under an Offer and Compromise.
Bottom line, remember that this too will pass. Try to learn from the experience all you can. Become a more strategic taxpayer through the process. Re-commit yourself to better bookkeeping.
Ok…maybe I’m being too positive and thinking how the glass may be half full. You’re probably right- getting audited sucks and there is nothing that will make you feel better. Well, just make a goal/reward to ‘treat yourself’ to something nice when it’s all over (Parks and Rec throwback for you fans out there). Maybe a spa treatment or going to the shooting range with your tax return as the target…be creative!
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.