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What you need to know before, during and after a tax audit

It would be an understatement to say that it's stressful to receive notice from the IRS that you are being audited. The best way to combat your nerves is to be prepared -- and to have an experienced tax law attorney on your side every step of the way.

Here are some preliminary steps you can take to be ready before, during and after an audit from the IRS.

Before the audit

The IRS will let you know that you are being audited by sending a notice in the mail. The notice will inform you of the name of your assigned auditor and a date by which you need to set up an appointment. This letter will detail the records that you will need to produce and have ready for the audit.

Your preparation should begin by gathering all the documentation from your tax return that was used to substantiate your income and deductions from the year in question. Review this information carefully and prepare yourself to explain any missing information. There are different documents for business and personal returns, but some the information you want to gather includes:

  • Bank statements
  • Credit card statements
  • Canceled checks
  • Receipts from donations, expenses and items you sold
  • Calendar logs and appointment information
  • Pay stubs
  • Automobile documentation
  • Travel, mileage and entertainment records
  • W-2 & 1099 forms
  • Articles of incorporation
  • Loan records

As you gather the information for your audit, contact your attorney. Again, it's important to understand that you need an experienced taxpayers' rights attorney who has extensive experience with audits. Professional guidance and representation can be especially helpful if you have missing information, are subject to a large tax liability/field audit or if the IRS believes there is fraud associated with your case.

During the audit

Keep this in mind: you can have your attorney represent you at the audit. You do not have to attend if you are represented by an attorney. 

In any case, you will want to show the auditor that you filed your return properly, that all your income was reported and that the deductions you took were appropriate. Make sure your supporting documentation is clear and you have copies of each one. You do not need to volunteer any documentation that was not asked for by the auditor.

After the audit

Expect to receive a report of the audit examination from the IRS indicating any interest and penalties you may owe. At this time, you have the option of signing the report and making a payment. If you disagree with something in the report, you have 30 days to make an appeal. Remember that it costs money to file an appeal and that the fee may exceed the amount you owe. Speak with a tax attorney about all of your options.

A tax audit can feel intimidating. The process can be made easier by preparing yourself beforehand and speaking with a professional tax expert. 

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