By Daniel Wolfe
So you’ve already mailed this year’s tax return and are looking forward to using that large tax refund check to book a nice vacation this summer. You’re watching the mailbox every day with great expectations. Then, the bad news hits.
What you thought was a nice big check is instead a letter from the IRS that you’re being audited. Yes, you’re among the 1 percent they’ve chosen to investigate. Better put that trip on hold – for now.
What is an IRS audit?
An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.
The more money you make, the bigger the chance is that you’ll get audited. But mostly, the IRS is looking for certain “red flags” on your tax return. For example:
- You made $80,000, but donated $40,000 to charity
- You wrote off 100% of your vehicle as a business expense
- Large losses appear on your return
- Data submitted to the IRS does not correspond or does not appear on the return you submitted
Regardless of the reason, many fear receiving that IRS audit letter. Will you have to pay back thousands of dollars in taxes? Will you have to pay interest and penalties? Will they audit your past tax returns? Are you going to jail?
Don’t panic. You can get through this by taking a few important steps:
Figure Out What the IRS Wants
A letter from the IRS doesn’t always mean you are being audited. Sometimes the agency is just looking for more information or clarification. You need to determine what part of your tax return is being audited – often, IRS auditors have questions on a portion of the return, not all of it.
Find Your Documentation
Now you know what the IRS is looking for. The next step is to build your case by collecting your documentation. Find as much information as you can.
If you haven’t kept much, you might need to reach out to third parties like your bank, financial planner, the charities you’ve donated to, etc., to see if they have anything in their records that could help you.
Get Professional Help
Don’t contact the IRS on your own, or ignore the letter.
You need professional help. To represent you before the IRS, a return preparer must be a CPA, attorney, or an enrolled agent, which refers to an individual who has passed a comprehensive IRS examination. Unless your preparer possesses one of these credentials, you'll need to find someone else to represent you.
If you’re looking for some guidance on how to respond to an IRS audit letter, call Dan at 330-385-2160 or email him at Dwolfe@bwlkcpa.com..