11 Tips for Surviving an IRS Audit

Photo by Iakov Filimonov / Shutterstock.com

The Internal Revenue Service is severely underfunded, which means the odds are low that your federal tax return will be audited. After losing about a quarter of its enforcement staff amid recent budget cuts, the agency’s capacity is the lowest it’s been in a decade, according to U.S. News & World Report.

The chance of an audit is under 1 percent on average — but soars to nearly 35 percent in the uppermost income brackets, according to a breakdown by the nonprofit Tax Foundation. But if you are among the unlucky ones who open the mailbox and find a notice of audit, here’s how to proceed:

1. Take a deep breath

ostill / Shutterstock.com

Calm yourself. After the shock wears off, reread the IRS letter to understand exactly what it says. Look for details explaining which aspects of your tax return are in question and precisely which documents you need to provide. “If you filed your tax return yourself and you have a complete understanding of each item on your return, you should be able to make it through an audit without any trouble,” says CNBC.

2. Understand your rights

Nelosa / Shutterstock.com

Hearing from the IRS can be scary, but you have rights. The IRS adopted a 10-point Taxpayer Bill of Rights in 2014 acknowledging those rights.

A couple of examples:

  • IRS rules give the agency just three years from when you filed your return to demand any additional money for that tax year. (There are a few exceptions, including a finding of fraud on your part.)
  • The IRS has 10 years to collect back taxes from you.

The National Taxpayer Advocate, an independent service within the IRS, explains taxpayer rights in more detail and has additional information and articles answering tax questions.

3. Get help

Woman in accounting
megaflopp / Shutterstock.com

If you hired a CPA to prepare your tax return, or if you did your own return but feel unequipped to face the IRS, get professional help. Check with the tax adviser who prepared your taxes to see if representation during an audit is part of the service. If not, learn the cost of hiring representation.

Accountants often caution their clients not to respond directly to an IRS notice. There is potential for problems, such as bringing down additional scrutiny on yourself by saying the wrong thing or trying to respond to a question you’d be better off not answering.

“Not only does a tax preparer have a professional stake in their clients’ audits, they have the knowledge and expertise to easily identify the reason for an IRS exam and help businesses and individuals prepare documentary evidence to counter claims of tax deficiencies,” says legal website Nolo.

Investopedia adds:

A representative acting on your behalf can always plead ignorance of the answer, follow up with you and then get back to the auditor. “This not only buys time for you to think carefully about how you will answer; it may also let the question drop if the auditor fails to follow up on it,” [enrolled agent Steven J. Weil of RMS Accounting in Fort Lauderdale, Florida] says.

If the IRS brings up tax fraud, get a tax adviser to represent you. Also, if a meeting with the IRS seems to be going poorly, request a recess to consult with an adviser.

4. Get a postponement

totallypic / Shutterstock.com

Schedule your appointment with an auditor as far in advance as possible so you have plenty of time to prepare for the meeting. If you need more time, just before the meeting date, ask for a postponement so you can continue your preparations. Be sure to get a response to your request — in writing.

5. Meet on neutral ground

Pressmaster / Shutterstock.com

When scheduling your meeting with the auditor, hold it on neutral territory — at your tax adviser’s office or at another venue. Holding it at your home or office puts you at a disadvantage. “If you are asked to host an audit at your business premises, consult a tax pro,” advises Nolo.

6. Meet every deadline

Time
pathdoc / Shutterstock.com

Don’t make grief for yourself by blowing off crucial deadlines for filing responses, attending meetings and producing documents. Stay on top of every single deadline.

7. Thoroughly prepare for your meeting

Nestor Rizhniak / Shutterstock.com

Begin immediately locating and organizing your tax returns for the year in question and pull out all supporting documentation. This enables you to see and gain command of the materials in question, fill in any gaps and familiarize yourself with the documents. Also, there are more subtle benefits: You’ll gain confidence from preparation and having command of your response, and attending meetings thoroughly prepared tells your auditor that you are diligent and respect the process.

8. Resist the urge to be extra-helpful

zoff / Shutterstock.com

Give the auditor exactly what was requested and nothing more. Answer the questions you are asked, and produce the documents requested. But do not bring to a meeting or offer to produce copies of other years’ tax returns or any documents that are not named in the audit request. “You do not want them opening up lines of questioning on other issues because you said or showed something that made them question something else,” says CNBC.

Nolo offers this advice:

If you have something to hide, don’t provide evidence to the auditor, but don’t lie, either. The adjustments she may make could be less damaging than if you had given her what she asked for.

9. Recalibrate your expectations

Krasimira Nevenova / Shutterstock.com

You may well be required to pay a penalty. Depending on why your return is being audited, emerging from an audit scot-free may not be a realistic goal.

10. Negotiate on the issues

Pressmaster / Shutterstock.com

When you get the auditor’s report, you can call the auditor if you disagree with the findings or do not understand them. If that is not satisfactory, request a meeting with the auditor’s manager, and try to come up with a compromise.

But haggling with the IRS auditor over how much tax you owe is not a winning strategy. Neither is pleading poverty. “Instead,” says Nolo, “negotiate tax issues — for example, whether a certain deduction should be allowed.” In other words, make sure you understand the auditor’s points and mount a reasonable, well-researched case to rebut them, backed up by your documentation.

11. File an appeal

Sinart Creative / Shutterstock.com

If your efforts to discuss the findings don’t produce a satisfactory result, and you receive a Statutory Notice of Deficiency (or “90-day letter”) saying you owe additional taxes and listing the areas where the IRS disputes your tax return, you have the right to appeal and will have 90 days to make the appeal. The IRS publication “Your Appeal Rights and How to Prepare a Protest if You Don’t Agree” explains the options. Nolo also explains in “The Pros and Cons of Appealing an IRS Audit.”

What’s your experience of being audited or impression of the IRS process? Share with us in comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
The 5 Most Expensive U.S. States for Retirees
The 5 Most Expensive U.S. States for Retirees

If you expect to have modest retirement income, you may want to avoid spending your golden years here.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

9 Genius Storage Solutions for Your Home
9 Genius Storage Solutions for Your Home

These creative products on Amazon will hide unsightly clutter while saving space.

10 Times You’re Right to Be a Cheapskate
10 Times You’re Right to Be a Cheapskate

Clever shoppers can save money without sacrificing quality. Here is how to do it.

12 Ways Retirees Can Earn Passive Income
12 Ways Retirees Can Earn Passive Income

These simple ways of earning income without a lot of active, ongoing effort can stretch your retirement dollars.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.