Don’t panic! The keys to success are being well prepared, establishing credibility right away, and keeping your wits about you. The IRS wanting to examine your return is quite a shock, no matter why you were chosen. You could not escape the anxiety that comes with an audit notice, even if you didn’t do anything wrong. You’re unlikely to be audited for the return you just filed. An audit by the IRS can be initiated three years after the date of your return. A timely filed 2019 return can be flagged for examination by the IRS until April 18, 2023. An audit letter will inform you if your case is selected. For a correspondence audit, you only need to mail in the records necessary to verify a specific claim on your return. During the past few years, the IRS has conducted more audits of this type. The IRS comes to your home or place of business to inspect your records during a field audit. However, most face-to-face meetings take place at IRS offices during office audits. It will probably take you a few weeks to prepare. Please contact the IRS immediately if the appointment times are inconvenient or if you need extra time to organize your records. As part of your notice, you will be asked to provide specific information regarding the items on your return that are being challenged, such as business expenses or casualty losses. There is usually only a couple of issues involved in an audit, so you will not need to bring all your records in for audits. In response to a 30-year IRS auditor’s question: “I expect your records to be seen when you file your tax return. Otherwise, how did you find out that you donated $500 to charity?”
You should also know that auditors sometimes require more than proof of what is on your tax return. They’re also interested in whether income that needs to be reported was not reported. It may be necessary to examine your bank records to find deposits that might represent unreported income, for instance. Getting your copy of the audited return is the best way to prepare for the meeting. Test your forms yourself before you submit them to the IRS. Find out if the IRS has a guide to audit techniques if you want to know more about their methods for your business or industry. In these manuals, the IRS explains how various businesses work and the types of things to look for when reviewing tax returns. Guidance like that can also be helpful for taxpayers who are being audited.
Ensure that you have every document you need that supports your statements in regard to the items being questioned. It is inevitable that gaps will arise, but don’t automatically give up. Reconstruct missing records:
- In the event that you cannot find the return, contact the IRS office that contacted you.
- Obtain copies of canceled checks, receipts, or written statements from individuals who can provide evidence to support your claim.
- Prepare an oral explanation if you are unable to provide written evidence.
There is no need for perfect records. The IRS may accept a figure that’s not fully backed by evidence if you can explain why you came up with it. Auditors are known for being reasonable, according to the IRS. When you’re putting together your records, keep in mind this: The more thorough your documentation is in general, the more likely an auditor is to cut you some slack occasionally.