ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

The IRS Audit Process and Procedures: A Survival Guide

Updated on February 10, 2013
KeithTax profile image

Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache.

Nothing brings greater fear than a letter from the IRS. Refund checks are sent in a window envelope; all other tax matters, like audits, are sent in a plain white wrapper. When the letter comes, you need to arm yourself with an understanding of the IRS audit process and procedures.

Armed with knowledge, you can win an audit, even if you made a mistake. The key is understanding how the IRS works from the inside. Auditors are trained to ask questions that reveal unreported income and overstated expenses. How you answer the auditor’s questions can determine the tone of the audit. The IRS audit process is exposed here. Use this information to protect yourself from the IRS.

The Audit Starts

The IRS letter will either have a date to meet the auditor or a phone number to call the auditor and set an appointment. The later is most common. If you have a business the auditor will need to view your business area or store at least once. Even if you have an accountant or tax attorney, the auditor has the right to speak with you initially. The auditor will exercise that right.

You need to prepare your paperwork prior to visiting the auditor. It is common for an audit to take place two years after the return is filed and you will need to become familiar with your documents from the year in question. It is also common for the tax year on either side of the audited return to face review.

Gather all your documents and add them up. Compare them to the tax return filed. Review your bank statements; compare deposits against reported income. Prepare an explanation if your deposits are greater than reported income. Loan proceeds and transfer of funds from one account to another are common explanations. Have supporting documents available.

Dos and Don’ts

An IRS audit is not an accusation. Answer questions honestly. Don’t volunteer any additional information. If you have unreported income, missing receipts, or fraud connected with your tax return, you need professional representation.

  • Don’t try to bribe the auditor. Yes, people try it. It does not work. It can also get you in very hot water.
  • Don’t drag out the audit unnecessarily.
  • Do not rush an audit. Take the time needed to document your numbers. If you need more time, ask for it. If denied, go over the auditor's head to her supervisor.
  • Do expect the audit process to take months. The initial review leads to weeks of waiting for results. This is common. An audit can take a few months to over a year. A long audit is nothing to worry about.
  • Hire professional help. You should not represent yourself in an audit, even if you are a tax pro. If you are a tax pro, don’t represent returns you prepared. Work with another accountant to represent the other’s audits. The IRS likes to use preparer penalties as a wedge between client and preparer. As preparer, you may have done nothing wrong, but the IRS may threaten you to get at your client.
  • Be respectful. Auditors are working a 9 to 5 job, like you. Make their life easier and it may make your life easier.
  • Don’t agree with everything the IRS auditor says. If she is wrong, be firm and say so.

 

How did your IRS audit turn out?

See results

After the Audit

When ink has dried on the determination letter, you have several choices, depending on the outcome.

  • No adjustment. You deserve a high-five. Your numbers proved out. The IRS has a habit of NOT auditing returns that don’t generate revenue. Your future audit risks just declined.
  • Refund. Shame on you. Your audit risk declined because you have the nasty habit of overpaying your taxes. Either take greater care to prepare an accurate return or hire a professional.
  • Tax assessment. The IRS says you owe them money. Know that the auditor is wrong as often as right. File an appeal. Consider tax court if appropriate. You also need to take greater care to preserve documents (if the tax due comes from lost receipts) or spend more time filing an accurate return. Consider a tax pro. Tax professionals pay for themselves many times over. By saving a few bucks in preparation fees, you may be over paying your taxes by double that amount.

Conclusion

The IRS audit process and procedures is not a deep dark secret. IRS rules are very strict, applying to you and them. Congress gave us a taxpayer Bill of Rights. The IRS sends a copy of your rights with each letter. Read and exercise them.

Comments

Submit a Comment

No comments yet.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)