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Facing Up to an IRS Audit

What should you do if you are ever tapped for an IRS audit? First things first: Do not panic. If you stay calm and follow a few helpful suggestions, you may be able to emerge from the audit relatively unscathed.

Generally, it is best to begin by consulting with an experienced tax adviser. The adviser can assess the potential damages, if any, that you may incur and organize your defense. However, the fact that you have obtained professional help does not mean you can relax. For instance, you can provide assistance by supplying the records needed during the audit. Usually, the better shape your records are in, the better off you will be.

Historically, there have been several different types of audits, as described below.

Office audits: Approximately 1% of the individual tax returns filed are selected for an office audit by a random computerized process. This type of audit generally requires that additional information be provided to determine if tax is due or to close the file.

Field audits: This type of audit takes place at an individual's home or place of business. The IRS auditor may ask for extensive proof of various deductions. However, a field audit usually does not turn into a comprehensive audit where the auditor questions every deduction. In most cases, a field audit is targeted at businesses (especially large corporations) and high income taxpayers. Do your best to provide the auditor with all the relevant information that he or she requests.

TCMP audits: In the past, these Taxpayer Compliance Measure Program audits were conducted at a taxpayer's home or office. It was an in depth process where the auditor challenged virtually every item on a line-by-line basis. These audits were used to measure taxpayer compliance. TCMP audits are history, but the IRS may conduct less intrusive audits of the same nature.

No matter what type of audit is involved, there is no need for you (or your employees) to volunteer any additional information. The best thing to do is to comply with each request made by the auditor-no more. You do not want to create any unnecessary inquiries.

Reminder: Although there is no guaranteed method for "audit-proofing" a tax return, completing your return in a timely, orderly and accurate fashion can reduce the likelihood you will be audited in the first place.

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	[ return to list ] Facing Up to an IRS Audit What should you do if you are ever tapped for an IRS audit? First things first: Do not panic. If you stay calm and follow a few helpful suggestions, you may be able to emerge from the audit relatively unscathed. Generally, it is best to begin by consulting with an experienced tax adviser. The adviser can assess the potential damages, if any, that you may incur and organize your defense. However, the fact that you have obtained professional help does not mean you can relax. For instance, you can provide assistance by supplying the records needed during the audit. Usually, the better shape your records are in, the better off you will be. Historically, there have been several different types of audits, as described below. Office audits: Approximately 1% of the individual tax returns filed are selected for an office audit by a random computerized process. This type of audit generally requires that additional information be provided to determine if tax is due or to close the file. Field audits: This type of audit takes place at an individual's home or place of business. The IRS auditor may ask for extensive proof of various deductions. However, a field audit usually does not turn into a comprehensive audit where the auditor questions every deduction. In most cases, a field audit is targeted at businesses (especially large corporations) and high income taxpayers. Do your best to provide the auditor with all the relevant information that he or she requests. TCMP audits: In the past, these Taxpayer Compliance Measure Program audits were conducted at a taxpayer's home or office. It was an in depth process where the auditor challenged virtually every item on a line-by-line basis. These audits were used to measure taxpayer compliance. TCMP audits are history, but the IRS may conduct less intrusive audits of the same nature. No matter what type of audit is involved, there is no need for you (or your employees) to volunteer any additional information. The best thing to do is to comply with each request made by the auditor-no more. You do not want to create any unnecessary inquiries. Reminder: Although there is no guaranteed method for "audit-proofing" a tax return, completing your return in a timely, orderly and accurate fashion can reduce the likelihood you will be audited in the first place. [ return to list ]
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