Facing an IRS audit can be a nerve-wracking experience, but with the right approach, you can navigate the process successfully. Whether you’re dealing with a mail audit or an in-person examination, these tips will help you be prepared and maintain your peace of mind.
- Know the Audit Landscape: There are four types of audits—correspondence, office, field, and compliance measurement. However, in practice, they mainly fall into two categories: correspondence (done through mail) and field (conducted in person).
- Understanding Compliance Measurement: The Taxpayer Compliance Measurement (TCMP) audit is akin to an intense security check at the airport. Every line of your tax return is meticulously examined. TCMP is rare and random, but understanding it is essential.
- The Cost Factor: Field audits are the most expensive for the IRS due to the resources required for in-person visits. This expense acts as a deterrent, limiting the number of field audits conducted.
- Favorable Odds for Mail Audits: Around 80% of audits are done through mail, making it likely that if you’re audited, it will be a correspondence audit.
- Pre-Audit Measures: The first three tips are your preemptive strategy. Ensure meticulous accuracy in reporting, maintain well-organized records, and consider seeking professional assistance before submitting your tax returns.
- Choose Deductions Wisely: While deductions are legitimate, avoid claiming extravagant or questionable ones. Legitimacy is key.
- Consistency in Reporting: Consistency across multiple years builds credibility. Drastic changes might trigger suspicion.
- Stay Informed: Keep yourself updated on tax regulations. Knowledge is your ally against unintentional mistakes.
- Respond Promptly: If contacted by the IRS, address it promptly. Ignoring notices can exacerbate the situation.
- Professional Representation: In the case of an in-person audit, consider having a tax professional by your side. Their expertise lends a sense of confidence.
- Know the Audit Outcomes: Understand the potential outcomes—no change, agreed-upon change, or disputed change. Your goal is to minimize change, or better yet, avoid it altogether.
- Embrace Preventative Measures: The ultimate way to ensure a “no change” outcome is to not be audited in the first place. This underscores the importance of preventative steps.
Facing an IRS audit doesn’t have to be a daunting experience. By adhering to these tips, you can put yourself in a better position for a successful audit process. Remember, preparation and proactive measures can help you achieve a favorable outcome or even bypass an audit entirely.
Kelly Coughlin, CPA
CEO, EveryDayCPA.com
Founder,TaxRxCenter.org