Tax Audits

The IRS will audit hundreds of thousands of individual tax returns this year. Although that represents only a small percentage of all returns filed, it is little consolation if your return is among those selected for audit. With proper preparation and planning, you should fare well.

The purpose of the audit is to verify items reported on a tax return. The easiest way to survive a tax audit is to prepare for one in advance. You should systematically maintain documentation such as invoices, bills, cancelled checks, receipts, or other proof, for all items reported on your tax returns. Keep your records in one place and hold on to your calculations.

The government normally has three years within which to conduct an audit, and often the audit will not begin until a year or more after you file your return.

The scope of an audit depends on the complexity of the return being examined. A return reflecting business or real estate income and expenses is likely to take longer to audit than a return reflecting only salary income. You can facilitate matters by having the necessary records arranged in an orderly and systematic fashion for presentation to the IRS agent. The typical IRS agent is experienced and knows his job. Trying to outsmart the agent or sidestepping questions is likely to create friction and raise suspicions in the agent's mind.

Even if you prepared your own return, it is often advisable to have a tax professional represent you at an audit. Your representative knows what issues the IRS agent is likely to focus on and can prepare accordingly. More importantly, a tax professional knows IRS agents may take a position (for example, to disallow deduction of a certain type of expense) even though courts and other authorities have expressed a contrary opinion on the issue. Because the representative knows and can point to the proper authority, the IRS agent may be forced to concede.

If you are facing a tax audit or simply want to improve your recordkeeping, our office stands ready to assist you. Please call to set up an appointment to discuss this or any other aspect of your taxes.