Few pieces of mail can ruin your day quite like an IRS audit notice. But getting one doesn’t mean you’ve done anything wrong. It just means the IRS has questions, and what you do next is important.
Before you start pricing one-way flights to a country without an extradition treaty, here’s what to do if you get audited.
You’ve got mail (unfortunately)
If you receive an audit notice, it’s definitely not something you want getting lost under a pile of coupons and extended warranty mailers.
But not every IRS letter means it’s time to prepare for battle, so make sure you’re actually being audited first by checking the notice number. If you’re the unlucky recipient of the IRS’s extra attention, the letter will tell you what’s being examined, what documents you need to provide, and next steps. If it feels like you’re reading hieroglyphics, the IRS has an online tool that deciphers its notices and letters.
Most importantly, do not ignore the deadline. Missing it could limit your options for challenging or appealing changes to your tax return.
This test requires showing your work
Now it’s time to gather whatever the IRS asked for. Your notice should tell you which records you need, so resist the urge to send your entire tax history.
Organize your documents around the specific items being audited. So, if the IRS is questioning a credit, pull together the records that show you qualified for it. It makes the IRS’s job – and yours – much easier. Then follow the instructions for how, when, and where to respond.
At this point, you’ve handled the immediate steps. But what happens if things get more complicated, or you realize you’re in over your head?
Find out what comes next – and when to call for backup.
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Know when to call in the pros
Nobody says you have to handle an audit alone. You can represent yourself, of course, but you can also authorize an attorney, CPA, or enrolled agent to deal with the IRS on your behalf. Unless you’re summoned, you don’t even have to show up to the interview, so you can leave your PTO intact.
If money’s an issue, you may qualify for help from a Low Income Taxpayer Clinic. Being unable to afford representation shouldn’t deter you from getting a professional on the case.
So when should you consider calling in a professional? If complicated tax issues are involved, you owe a lot of money, your records are missing, or you’re not sure how to answer the IRS’s questions, professional help may be worth it.
And if you’re staring at an IRS notice wondering whether you’re already in over your head, that may be your answer.
The results are in…
Once the IRS wraps up its examination, there are three possible results:
- No change: You successfully backed up your return and nothing changed. You’re done, so go celebrate by doing something that doesn’t involve taxes.
- Agreed: The IRS proposes changes and you agree with them. You’ll sign the examination report and may owe additional tax, penalties, or interest.
- Disagreed: The IRS proposes changes, but you are not on board. You can challenge the findings and have the right to appeal.
If you fall in that last category, don’t start waving the white flag just yet. You have more options.
Not the answer you wanted?
If you disagree with the audit results, you don’t have to grin and bear it. You may have options, including requesting a conference with an IRS manager, pursuing alternative dispute resolution, or filing an appeal.
Your IRS notice should explain your appeal rights, what you need to do, and how long you have to do it. It’s worth saying again: whatever route you take, be sure to watch the clock. Don’t be forced to accept defeat just because you missed the deadline.
Just remember that an IRS notice doesn’t mean you’re guilty of anything or that you’re about to hand over your life savings. Read the notice, meet the deadlines, get your paperwork together, and know your rights. Getting the audit letter is intimidating. What happens next doesn’t have to be.
