While the IRS tax audit process may seem scary, you may be able to get through the review — nerves intact — if you’re prepared.
What to do when you receive an IRS audit letter
IRS tax audit triggers include not reporting all your income, or even simple math errors. If you do receive a notice, the IRS will always contact you by mail with all the information needed for complying with the request.
The IRS auditor may ask for specific documentation to justify a particular deduction, or some other aspect of the return for the year in question. The auditor may conduct the review by mail or via a face-to-face interview.
An audit held at your home, tax advisor’s office or IRS office could suggest a far more thorough review of your tax records. In some cases, the auditor may ask to inspect the last three years of tax returns. If a major error is found, the reviewer may look back another three years and ask to see those detailed financial records as well.
If you’ve done a good job of tidying your tax files, you should have no problem finding the right records quickly. And often, in the case of what are called correspondence audits, your helpful response and documentation can settle the matter.
You typically have 30 days to respond to the audit notice. If you fail to reply, you may increase the chances of the IRS taking unfavorable action against you such as sending a bill for the full amount the agency believes you owe.
How do I survive a tax audit?
After the auditor receives all requested information, the examination begins. An audit is often completed in one of three ways:
- No change. The auditor is satisfied with the information received from the taxpayer and accepts the tax return as correct, or not in need of an amendment.
- Agreed. The IRS proposes changes to the tax return that the taxpayer understands and agrees with.
- Disagreed. The IRS proposes changes that the taxpayer understands, but disputes.
Know your rights
If a meeting is required, it’s important to know your taxpayer rights before you go, including:
- Why the IRS is asking for information
- How the IRS will use your information and what will happen if the information requested is not provided
- A right to be represented by someone of your choosing, such as a tax attorney
- The right to appeal audit disagreements
At the conclusion of the audit if you agree with the findings, you’ll sign the examination report. If you owe money, you can work out a payment plan. If you disagree with the audit you can request a conference with an IRS manager, file an appeal or seek mediation.
If you’re worried you could make a mistake on your next tax return, let a professional help. You can get low-cost tax preparation at a branch near you. Members who prefer an online solution can get a discount when using TurboTax® online. The software has built-in checks that look for errors and help determine your audit risk.