The IRS has sent you a letter- and it’s not great. You’re being audited.
For many Americans, the idea of an audit is terrifying. Will you have to pay heavy fines? Could you end up in jail?
Your mind may be racing, but it’s important to try to remain calm. The vast majority of audits are not severe and can be resolved with little trouble. Here’s what to do.
4 Steps:
Don’t Panic
The IRS initiates hundreds of thousands of audits each year, and most are conducted by mail- meaning you don’t even have to speak with anyone from the IRS.
So, try to take a deep breath and proceed calmly. If you panic, you’re more likely to make a mistake. You need a clear head to defend your case.
Read Your Audit Notice Carefully
Your audit notice will explain exactly what type of audit you’re facing and which documents the IRS requires. There are five types of audits, each with different requirements:
- Correspondence audits: the least severe. The IRS will ask you to provide documents and receipts, usually via mail.
- Office audits: slightly more severe than correspondence audits. You’ll have to meet with an IRS representative, usually in a local office or by phone.
- Field audits: conducted in your home or business premises and usually require you to provide detailed information.
- Taxpayer compliance measure program (TCMP) audits: similar to a field audit but conducted by an IRS team.
- Special project audit: the most severe type of audit and usually conducted in connection with criminal investigations.
Gather Your Documents
The best way to prepare for an audit is to organize all of your records related to the tax return in question before responding to the IRS. This could include bank statements, receipts, tax returns, loan applications, and other information supporting your claims.
For example, if the IRS is disputing your deductions, gather documents that provide proof of the expense. In some cases, such as a home office deduction for freelancers, it’s important to show detailed records to prove that the office space is devoted entirely to business activities.
Respond Quickly
When you receive an audit notification, it can’t be ignored. The IRS has specific deadlines for responding, which vary depending on the type of audit.
Pay close attention to the date on the IRS notice, and make sure you submit all necessary information by that deadline. Being late or unresponsive will not help your case.
What Happens If You Don't Have Receipts?
Responding to an IRS audit invariably requires documentation. However, you still have options.
If you lost the receipts, you can contact vendors to request copies of invoices or statements. You can also look for other documents that prove your deductions- such as credit card statements or bank account records.
Alternatively, consider turning to a CPA who is experienced in handling IRS audits. A CPA can help you to reconstruct your records and reduce the risk of fines or other punishments.
What IRS Penalties Can You Face?
The IRS can levy penalties in a variety of forms, but the two most common are interest and fines.
Interest is charged on unpaid taxes, accumulating daily until you settle your debt. Fines are imposed for additional offenses, such as failing to pay or filing late, and can be extremely high if your negligence is significant.
It’s also worth noting that in some cases, criminal penalties may be imposed. So, you may need to contact a tax attorney if your situation is severe.
Remember: while being audited is never fun, it doesn’t always lead to disaster. You can likely avoid the harshest penalties if you remain calm and respond quickly with clear documentation.
Get Professional Help
Being audited can feel terrifying, but you don’t have to face the IRS alone. Let the experienced team at Kondler & Associates step in. We’ll help craft your response to your audit notice. If the IRS requests a meeting instead, we’ll be there to answer the agent’s questions.
An audit doesn’t have to ruin your finances. Contact Konder & Associates, CPAs, today for a consultation.
