Ask most Americans what they would consider the most unpleasant experience in their life, and many are likely to answer the same: an audit by the IRS. The IRS has three years to audit any return from the point of filing. Generally, the IRS will conduct an audit if it finds a significant understatement of income. During the process, the IRS can look back at more than just the most recent return but cannot go further back than your last six years' returns. So, what do you do if you get audited by the IRS?
Understand the 3 Basic Types of Audits
There are three different types of audits the IRS will typically undertake when looking back through an individual's returns. According to DE-Taxes, the three main types are correspondence, field, and office. The basic information on the three types is as follows:
- Correspondence: This type of audit is the most common and is also the easiest to undertake. The IRS typically sends a letter indicating a correction to tax returns, which tends to result in individuals either paying in more in taxes or possibly receiving a larger refund.
- Field: A field audit is generally reserved for businesses rather than individuals. The IRS sends a group of auditors to a business to examine the books and other documentation for inconsistencies.
- Office: Possible for both individuals and businesses, an in-office audit requires a visit to the IRS with tax documentation to substantiate the information found on your return.
Schedule Your Audit
If you receive a notification of a pending audit on your taxes, the first thing you should do is schedule your audit. If you have received notification for a correspondence audit, you will be given a deadline by the IRS to send updated records in the mail. For field or office audits however, you will need to schedule a time to meet; this occurs within a few weeks. If you are ready to meet with the IRS immediately and have your documentation, schedule the most convenient time for yourself. If, however, you need extra time to collect your documentation and prepare for the meeting, try to postpone a meeting if you can to give yourself time to prepare.
Gather the Documents You'll Need
With a meeting scheduled to go through your return, make sure you take time to gather all the appropriate documents you will need to refute any assertions by the IRS that you find incorrect. According to Patriot Software, this includes the follow documents:
- Proof of income
- Bank statements
- Investment statements
- Legal papers
- Loan agreements
- Business logs (if applicable)
Handling the Audit Meeting
If you must meet with the IRS in person for your audit, there are a few things to remember that can make the experience less stressful. For starters, do not let the stress of the situation get to you mentally. A terse attitude with the auditor is only going to make the situation worse. If you are uncomfortable taking the meeting yourself, you can hire a professional to represent you in the meeting instead of attending yourself. Once the process is complete, review the results of the audit. You may find information in there that led to the audit in the first place, which could be used in the future to avoid another audit.
On a final note, CBS News reminds its readers to be careful when it comes to notifications of an audit taking place. Remember, the IRS will never call or text you to initiate an audit. All audits start with notification from the IRS on official letterhead.
If you need assistance with taxes or if you are unsure if you will be audited, call your advisor at Manhattan Ridge Advisors.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.