A tax audit is an inspection completed by the IRS or other tax agency, which investigates the accounts and financial information of an individual or business in order to ensure it matches their tax return. While it can feel overwhelming at the time, know that there are tax professionals who can successfully guide you through an audit.
We’re going to take a deeper look at how to survive a tax audit, to ensure that individuals and businesses can be prepared at all times.
Items That Trigger a Tax Audit
The IRS claims two main reasons for tax audits: random selection by computer screening or related examinations. The random selection comes from a formula developed by the IRS, that’s created a norm for returns of a similar type.
If a tax return looks different than the average for that type, this activates a tax audit. A few of the items that trigger the audit include expenses that exceed reported income, incomplete forms, or significant losses.
A related examination can also force the IRS to audit an individual or business. These returns are related to other taxpayers that were selected for a tax audit. For example, if one business becomes audited because of significant losses, then investors or business partners may be audited as well.
Hurdles to Overcome in a Tax Audit
A tax audit can be a grueling process, taking a year or more depending on the agency that conducts the audit. However, a business or individual can make the process more complicated when they are not fully prepared for an audit at all times.
When preparing taxes, consider the following hurdles a business or individual may face during the tax audit process.
Lack of Records
Without proper records, it’s difficult to prove a tax return is correct. Keep thorough, organized records for every transaction. While this will look vastly different depending on the business or individual, the types of documents requested during a tax audit include:
- Receipts, invoices, and bills
- Bank statements
- Legal papers
- Loan agreements
- Employment documents
- Theft or loss documents
- Payroll documents
An Unreasonable Auditor
Sometimes, an auditor can simply be difficult to work with. Because the organization or individual doesn’t decide who their auditor is, it’s best to hire a tax attorney to help navigate communication with the auditor and ensure that all rights are protected.
Poor Communication
Keep emotions out of the audit process. When speaking with the auditor, provide important facts and documentation they may not have received with the tax return. Hiring a tax lawyer ensures that the auditee has an expert on their side to help communicate with the auditor and promote quality interactions.
How a Business or Individual Can Protect Themselves During an Audit
Retaining a tax attorney is the most important thing you can do to protect yourself or your business during an audit. Tax attorneys understand confusing legal language and can interpret what it means. Plus, the attorney will defend their client and can negotiate terms as needed.
While in the tax audit process, make a deposit to stop the accrual of interest while the audit is ongoing. The money may or not be returned but a payment prevents excessive interest from piling up.
As previously mentioned, every individual or organization must keep excellent records. This is a key to success during an audit, and allows your lawyer to provide evidence for your tax return.
It’s difficult, but not impossible, to avoid penalties during a tax audit. In some instances, a penalty can be avoided by showing that you reasonably relied on a CPA or other tax professional to accurately file your return.
Survive a Tax Audit With Tax Attorney Mindy Meigs
A tax audit comes with expensive consequences. You may have to pay additional tax, penalties, and interest, and other years may be opened for audit.
Don’t try to handle a tax audit alone. Instead, work with tax attorney Mindy Meigs. She has extensive experience in all aspects of tax controversy and tax litigation, and has handled more than 500 cases before the U.S. Tax Court.
With 15 years of experience as an IRS attorney, there are few (if any) tax controversies or tax litigation issues that Mindy can’t help you with. If you’ve been notified by mail that you’re being audited, contact Mindy Meigs for representation today.