How to prepare for an IRS audit
Few things can inspire fear like an IRS audit, but preparation can help allay those fears so that things proceed smoothly when the IRS comes calling. We asked experts in law and accounting to share their thoughts on the best way to get ready for an IRS audit. Here’s what they had to say.
Greg O’Brien
President
Greg O’Brien has represented clients with both federal and local tax issues and has helped individuals and businesses navigate the complex tax code in order to create the most tax advantageous situations.
Your best strategy approaching an IRS audit is to document, document, document. Even if you cannot find or do not have records for the time in question, a well-written, thorough explanation will go a long way with an auditor. For example, if you cannot find that travel log, try recreating it using your business calendar, and document your methodology for recreating the record.
The auditor is not required to take your written responses in lieu of any missing records or documents, but many times, this will satisfy them and prove to them you are serious about coming to a resolution with the IRS.
Michael Eckstein, EA
Michael Eckstein is the owner of Eckstein Advisory and Eckstein Tax Services.
Before you get started, thoroughly read the letters you get from the IRS and understand what the issue at the heart of the matter is. Skimming their letters and guessing what they want just wastes your time and leaves you unprepared.
David Reischer, Esq.
David Reischer is a NY business attorney. David was admitted to the bar in New York in 2004 and specializes in real estate, mortgages, finance and general tax and estate planning law.
The best way to prepare for a tax audit is to organize the documents that are most likely to be requested to substantiate the tax return that was filed.
Make sure to organize the following:
Receipts and bills
Canceled checks
Legal documents
Loan agreements
Business or expense logs
Travel-related paperwork
Medical bills
Employment documents
Investment statements
It is also a good idea to organize the paperwork by month and year so that all documents are easily accessible and immediately available if requested.
Chad Silver
Chad Silver is a tax attorney and the founder of Silver Tax Group. He has extensive experience in helping people with issues such as tax audits, back taxes, asset seizure, and much more.
Regardless of whether you’re meeting the IRS agent at their office or your place of work, it’s critical to be prepared. If you’re preparing for an audit, the first step is to make sure you have legal representation. Next, bring all relevant records and documents.
The IRS agent will be specific about what they need, and it’s essential to bring exactly what they request, not your own interpretation of it. Bringing the wrong documents can lead to even more audits and further trouble with the IRS. So what’s the bottom line? Bring legal representation and make sure you have the correct, specifically requested, documents.
Mria Group
Matthew and his team at the Mria Group have been in the public accounting and risk management sectors for almost two decades. After working with some of the largest entities in the USA and managing their insurance companies and risk management programs, Matthew has a unique insight that goes beyond his years in public accounting. His focus has always been bringing the accounting and insurance industries forward through intelligent uses of technology and meeting shifts in the demands of the current, youthful, workforce.
Stay calm! If you aren’t a crook, you most likely don’t have much more to worry about than you should have in the first place.
Many times, the worst part of the audit is pulling together the documentation and discussing it with your CPA and/or attorney.
This may entail some additional fees, but more likely than not. If you didn’t hide anything from your tax preparer then a certain number of hours were allowed for in the engagement letter and were likely covered by the original fees you paid.
If you’ve engaged an attorney and/or CPA to represent you, make sure they are well-versed in these types of proceedings.
Many times, the attorney or CPA will be familiar with the IRS agent who is auditing you. It may be the same IRS office/location/agent pulling specific types of companies for deductions or whatever the ’trigger’ was you got flagged for. Make sure you spend some time researching what the issue is and who’s best suited to represent you.
Don’t assume your tax preparer is the right person for this job.
Answer ONLY the questions being asked of you in either the IDR they sent or any discussion either via phone or in person.
Similar to being deposed or on trial, consider the question being asked and provide only what is needed to satisfy the question.
You don’t get extra points for talking more, and honestly, the agent will probably thank you for not overloading them with useless documents.
At the end of the day, you are dealing with another person (the IRS Agent).
Be respectful. Be measured. Be forthcoming and honest. If you hide something from them, it will only make it worse.