The Internal Revenue Service (IRS) just got some major funding, and a large portion is earmarked for enforcement. This will likely translate to an increase in audit rates. When this increase will occur is not yet known, but the prospect of a jump in the audit rate provides an opportunity to discuss the steps taxpayers should take to protect their rights in the event of an audit.
First, it is important to note that there is more than just one type of audit. The IRS has a couple of different options when it comes to auditing taxpayers. Three available options include the correspondence, office, and field audits. The correspondence audit generally involves the agency sending the taxpayer a mailing. It is not a traditional audit but instead often involves the agency gathering additional information through mailings to check for or confirm a suspected error. The types that bring to mind the more traditional audit style are the office and field audits. For an office audit the IRS will generally call a taxpayer in or, for a field audit, the agency will send an agent out to conduct the audit.
Now that you know an audit can come in different forms, we can dive into some ways to protect your interests. The following tips will help taxpayers protect their rights regardless of the type of audit.
Step 1: Take it seriously
The most important step is to take the matter seriously. Do not delay dealing with the matter or leave it to the IRS to take care of the issue on its own. If the IRS has you in its target it is very likely the agency will move forward with an investigation and, if it finds any evidence that the mistake was intentional, pursue criminal charges.
Step 2: Gather information.
The IRS is looking for evidence to support their claims that you made a mistake on your filings. If you do not have copies of the needed documents to support your tax filings, check with the third party to see if you can get a copy of any relevant records. The IRS may request receipts from vendors or contractors to support business expenses, settlement agreements, employment documents, or copies of Schedule K-1. Get your paperwork in order and discuss it with legal counsel before moving forward.
Step 3: Get representation.
As noted above, it is important to have legal counsel. Tax laws are complex and constantly evolving, and the stakes are high. Do not take a risk by attempting to negotiate with the IRS on your own. You may take command in business meetings, but the IRS is a different matter. Experienced counsel can advocate for your interests and better ensure a favorable outcome.