It’s unlikely that you’ll be audited — the IRS audits less than 1% of the tax returns it receives. If an audit notice does show up, though, tax pros say there are a few basic steps you can take to steady yourself.
Make sure you’re actually being audited
People sometimes confuse an IRS adjustment notice with one for an audit, says Seattle-based CPA Robert Loe. (You can look up the types of notices here.) Adjustment notices come, for example, when the IRS finds a math error or discrepancy between your tax return and its records, and may offer instructions and information about changes to your tax bill.
“That’s not an audit,” Loe notes.
Also, legitimate audit notices come from the IRS only in writing — not via phone, email or social media.
“If that’s the first point of contact, you can pretty much guarantee that that’s a scam,” warns Paula Deckman, a CPA at Pittsford, New York-based Bonadio Group.
Go see a pro
CPAs, enrolled agents and tax attorneys have unlimited representation rights before the IRS, which means they can represent you before the agency even if they didn’t prepare your return. They may also be able to tell you whether the audit is simple enough to handle yourself, Deckman says.
Audit hot spots
There’s no surefire way to predict an audit. But when one occurs, certain issues tend to surface.
- Overreaching travel expenses
- Credit card statements posing as receipts
- Unsupported meal and entertainment expenses
- Strangely high charitable contributions, particularly noncash ones
- Unsubstantiated deductions for auto expenses
- Taxpayer claims a computer died and took the tax records with it
- Mismatches between reported income and income appearing on W-2s
- Lots of round numbers
Professional help usually costs money, but if you used tax software to file your return, read the fine print — you might have free help coming. Some packages sell or come with audit guidance, which largely means they’ll just explain what the IRS is telling you; others sell or come with audit representation, which means they’ll speak on your behalf to the IRS.
In any case, if you get representation you’ll likely need to sign a power of attorney form so that the representative can access what he or she needs and can act on your behalf. Be sure that the power is limited to tax information and specific tax years. Your tax representative typically doesn’t need access to your medical records or other areas of your life, Deckman warns.
Start digging through the filing cabinet
Many times the IRS is interested in auditing only a part of your tax return rather than the whole thing, Loe says. “The letter will say what they want to see,” he explains.
You should keep your tax records, including supporting receipts, for at least three years. Generally that’s how far back the IRS goes for audits, unless you’ve substantially understated income, overstated expenses or fraud is involved, Loe notes.
Get ready to wait
Audits usually come in two flavors: correspondence and in-person. Correspondence audits involve mailing information and questions back and forth; in-person audits involve live visits with an IRS employee.
Correspondence audits can last several months, Deckman says. In some cases taxpayers can switch to an in-person audit.
“You can contact the correspondence unit and request that the case be sent to a local office,” she adds. “They generally don’t want to do that, but if you can, make the argument: ‘You know what, I’ve been corresponding with the people in your unit for four months and I haven’t gotten anywhere. I either need to get a supervisor to get involved, or you need to send it to the local office and I will go over and present the information again.’”
Keep your emotions in check
Don’t let feelings about the process become part of the audit, Deckman warns.
“I highly recommend to my clients that they generally refrain from communicating with the auditor,” she says. “If the auditor wants to talk to them, I can make that happen, but I will also be present, because I find that people say things that they do not understand the true meaning of. And before you know it, they’re sticking their foot in their mouth and I’m trying to get a crowbar to get it back out of there.”
Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: [email protected].