Receiving an audit letter from the Internal Revenue Service is not the way anyone wants to end the tax season.
However, not every audit that arrives in a taxpayer’s mailbox requires a face-to-face meeting with an IRS agent. In some cases, the issues can be resolved without ever setting foot inside an IRS office.
“[Don’t be] afraid, but don’t be callous about it either,” said certified public accountant Paul Carlson, managing partner at Arizona-based CPA firm Law Firm Velocity. “You want to err on the side of caution and get back to them quickly with everything they’ve requested.”
While it can be difficult to fight off the fear that comes with an audit, knowing how they work and what to do when you get one can make the process easier.
Know your type
As intimidating as an audit might sound, the concept is relatively simple, according to the IRS – “a review/examination of an organization’s or individual’s books, accounts and financial records to ensure information reported on their tax return is reported correctly … and to verify the reported amount of tax is correct.”
In other words, the IRS wants to see proof that the numbers you included on your tax return are legitimate and that the tax you owe (or will be refunded) is accurate.
There are typically three types of audits, Carlson said: correspondence, office and field.
Correspondence audits arrive by mail and tend to request certain documents or information you can upload through your IRS account, fax or send by traditional mail.
Office audits require you to go to an IRS office and “explain parts of your return,” Carlson said.
The third type of audit, a field audit, is more complicated because they involve an IRS agent coming to your home or business to do a review of “your books, income and expenses,” Carlson said.
Hire a pro
Hiring an accountant can be a huge help during the audit process, especially for office and field visits, said CPA Emily Shacklett, a senior wealth advisor at Dallas-based financial management firm Hightower Signature Wealth.
“If I was audited, I would bring in my tax professional,” she said. “I have a CPA that does my tax return even though I’m a CPA. I think it’s good to have an objective third party involved when you get to a certain point down the path [of your audit].”
Your tax pro can work side by side with you to analyze the IRS request and calculate the impact it will have on what you owe or what’s owed to you.
And, the deeper your audit goes, especially for office and field audits, the more valuable it is to have an accountant by your side, Shacklett said.
“The further you get down the path, the more it makes sense to have a professional involved because they know how to interact with IRS agents,” she said. “They know what to expect in terms of questions, what information is needed, and what is superfluous and shouldn’t be provided.”
Move fast
If you get a correspondence audit requiring documentation, the strategy is simple, Shacklett said.
“Tackle it quickly,” she said. “Meet their deadlines.”
Also, if you’re having a tough time putting together the documents you need and may miss the deadline, you can request an extension, Shacklett said.
Taxpayers have the option of uploading documents to their online IRS account, but can only do so if they sign up for a free ID.me account, which verifies the taxpayer’s identity and provides a secure way to access their tax information.
“If you’ve kept good records, then there’s no reason to panic,” Carlson said. “It’s usually resolved after a few [interactions] and once you share a receipt or two.”
Do what you’re asked … and that’s it
The third tip for handling an audit is to provide only what the IRS asks for. Giving them more information than they need might make the situation worse.
“It’s best to never volunteer extra info or guess on missing pieces because that can make things confusing for everyone,” Carlson said. “And it could also invite unnecessary scrutiny. Stick strictly to what your documents prove and keep it at that.”
Shacklett offered the same advice, saying never over-provide documentation and information. If you do, you might invite more questions from the IRS, which could complicate your audit.
Deep breaths
Finally, Shacklett recommends that taxpayers stay calm when they get an audit; it may not be as bad as the recipient thinks. Some situations can be resolved pretty quickly.
“Take a deep breath,” she said. “Don’t be scared because even if there is an error, even if there’s something you need to correct for, particularly if it’s legitimate and you weren’t trying to pull the wool over or do anything fraudulent, these are things that are easy to fix.”
This article is sponsored by Credit Karma. We may earn a commission if you engage with their services using links in this article.