Tax Prep & Filing


What the Odds Are That Your Tax Return Will Be Audited, and What to Do If It Is

Do You Need Help?

You don't have to go to the audit at all. You can avoid it by hiring someone to go in your place. Such a representative must have written authorization to act for you, and the IRS provides a power-of-attorney form — Form 2848 — for this purpose. Whether you go alone or hire a representative to go with you or in your place depends primarily on the issues involved. If they're relatively simple, cut-and-dried matters, you may be able to settle things without help. When matters are more technical or require interpretation of the law, however, it's more likely you'll need assistance. You have to make this judgment, and it will turn in part on how you feel about going head to head with the IRS. If you're scared, by all means get someone to go with you or in your place.

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See Also: Check Your Audit Risk

If someone else prepared your return, let him or her know about the audit and ask for tips on how to get ready for it. Whether you want this person to go along may depend on the cost to you. Although the IRS prefers to wrap up cases with one meeting, if you don't agree with the auditor's conclusions or need time to round up extra evidence, you can schedule a follow-up meeting. Unless you fear you might capitulate if you go to the audit alone, you may want to try to settle as many issues as you can by yourself.

If disagreements remain and the amount of money at stake justifies the expense, you can take an adviser along to the next session. That way you'll have help when you really need it but won't have to pay for hand-holding while you clear up routine matters.

And note this: The Taxpayer Bill of Rights gives you the right to stop an audit in its tracks if you decide you want representation. If the audit begins to veer off of the topics you are prepared to discuss, for example, you can call a halt to the proceedings and seek help if you need it.

The Big Day

The key to success is being well prepared. Forget the old slapstick routine of dumping a box of canceled checks and ratty receipts on the auditor's desk. That suggests your records are sloppy, and that's the last impression you want to give. Remember, it's up to you to back up the information on your return. The better organized your records, the more smoothly things will go.

Establish credibility right from the start. If you do, there's a better chance a gap later may be overlooked. Say that the audit notice states that your interest deductions, charitable contributions, and travel and entertainment write-offs will be reviewed. If you're solid on interest and contributions but shaky on T&E, try to steer the audit to your strong suits first.

Don't go into the session looking for a fight, but don't equate being cooperative with giving in whenever the auditor raises an eyebrow, either. If the agent tells you your records don't substantiate a deduction, for example, ask what might suffice. Perhaps you can mail it in later.

Don't chat your way into a problem. Keep in mind that the agent is trained to zero in on tax issues. A comment you consider totally unrelated to your return might lead you into a thicket. Defending a deduction by saying you've taken it in the past, for example, could prompt a review of previously filed returns; discussing the family's cross-country driving vacation might lead the agent to recalculate the ratio of business/personal miles for your car; or bemoaning the problems that led a child to drop out of college could cost you a dependency exemption. Fear that taxpayers will talk themselves into trouble is the key reason many advisers recommend sending a representative rather than showing up to the audit in person.

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