Small Business Tax Policy

How to Handle an IRS Audit

Here are some ways to fight back

Receiving a notice or a letter regarding an audit from the IRS or a state taxing authority can be extremely stressful, time-consuming, and costly. They could be asking for thousands of dollars in taxes, penalties, and interest. This could be in addition to the thousands of dollars that a CPA or attorney would charge to represent you in front of the taxing authority (and tax court if you go to appeal).

Keep in mind that most notices you receive (as long as you have complied with the tax code) should just involve a misappropriated payment or an honest mistake (maybe you forgot about a 1099 or W-2 you received). A knowledgeable CPA would be able to assist you in preparing your tax return in your favor and within the tax law. That being said, if you receive a notice a competent CPA should be able to guide you through the process (whether you just need to answer a notice or meet with an auditor).

What Does Your Notice Mean?

Receiving a letter from the IRS or a state taxing authority can mean many different issues. The least complicated notices state that they did not receive your tax return or a payment with your return. This often happens if paperwork is mailed and they do not properly mark your account. In these cases, it often just takes a phone call or letter to the IRS with proof of mailing and payment.

Even if you filed late (and it was your first time), you can often get away with a call to reduce any penalties. The more involved cases come to light when the taxing authority wants to audit your tax return. In this case (usually for businesses and Schedule A Itemized Deduction issues), the IRS will (either in person or through the mail) request to see documentation for your income and expenses.

This often requires great attention to detail, organization, and the expertise of your accountant. You most likely do not want to go in fighting the agents – a calm and friendly demeanor can go a long way. If your case goes to appeals based on the determination of your auditor and his/her manager, you will also need the experience and expertise of your tax professional.

Fighting Back With A CPA

All in all, receiving a notice from the IRS can be extremely nerve-wracking and costly. Preparing your return with the assistance of an experienced accountant can help reduce the chances of these issues arising.

Whether a simple letter needs to be written, or you need to be represented in front of the taxing authority, there are often ways to help reduce what you might owe. If you ever receive a letter from the IRS or a state you have filed taxes with, I am happy to review the letter for no fee.

Please keep in mind that the IRS will never call you or show up at your house demanding immediate payment. If you ever receive a call, hang up immediately. If you ever receive a knock on the door from someone claiming to be an IRS agent ask for identification.

photo credit: Copyright: <a href=''>samuraitop / 123RF Stock Photo

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