IRS Audit Kitteh Hopes you have all reciepts!It seems that just as tax season is winding down the IRS letters start ramping up. The reason is simple; they are about two years behind or so, and those letters have just started arriving.

The most important thing to remember is DON’T IGNORE THE LETTER! This will just give you even more problems. As soon as you get a letter, it is best to send it immediately to your CPA (this is where having a CPA or EA (enrolled agent) is an advantage over a tax preparer). CPAs, EAs and Attorneys are the only ones who are authorized to actually talk to the IRS on your behalf.

There are several ways the IRS can audit you.

  1. A letter audit – this is the most common. They found something that was reported to them that you forgot to put on your tax return. The problem is, they only do this with income and not expenses. If you forgot to put a stock sale on your return, they will let you know and charge you for it along with late penalties but if you left off the mortgage interest deduction, you are on your own. Sometimes the income was reported it just didn’t match what the IRS has on file. These normally are fixed by either filing an amended return or writing a letter explaining where the income is located and why.
  2. A Correspondence audit – This is usually a letter directly from an Auditor, requesting documentation to substantiate something on your return. Don’t take these lightly, they want the same information you would hand them in person. They just want you to mail it to them. This type of audit is usually asking for specific information to verify something on your return such as charitable contributions or employee expenses. And they usually come with very specific deadlines.
  3. An audit at the IRS office – this one is normally done with self-employed people or small business owners. This means they want you to bring the information to them at their office. The letter requesting your presence should not be ignored. Make sure you are there or someone who represents you such as your CPA or Attorney is there. It is often best for the taxpayer not to appear because you need to know what they are questioning and you don’t want to answer questions until you have an opportunity to prepare a proper response.
  4. A Field audit – this is the most comprehensive IRS audit. This means the IRS Auditor is coming to your home or business location in person. Often the meeting can be changed to the office of your CPA or Attorney if they are representing you. This usually requires several visits by the Auditor and is very time consuming. The Auditor often wants to confirm that you actually have the equipment you reported as purchased or the actual receipts and bank statements.

Just remember the IRS Auditor is not an evil person trying to prove you did something wrong. Just make sure you are prepared and have professional representation.