How to prepare for a tax audit

No matter who you are, the IRS has the legal right to select your tax return for an audit. As scary as it may be, just because you’re faced with a tax audit doesn’t necessarily mean you’ll owe additional money.

The first step in the tax audit process is a notification letter. Keep in mind that you’ll receive this notification via snail mail, not via email or over the phone.

The notification letter will include a variety of details, including but not limited to:

  • Information on the tax audit process
  • Reasons why your return was selected for an audit
  • Instructions for you to follow
  • Deadline for replying to the notice

Up next, you’ll determine how to proceed. This is typically done in one of two ways:

  • Tax audit by mail
  • Tax audit through in-person interviews

The severity of the tax audit will dictate the process you follow. For example, if the IRS has reason to believe you’ve committed a crime, such as by hiding income, they may request an in-person interview at your office, home, attorney’s office or tax professional’s office.

In the event of a less serious audit, the IRS will correspond with you via mail in regard to what you need to do. Generally speaking, this correspondence will help verify the accuracy of your return.

What happens next?

There are three potential outcomes of a tax audit:

  • The IRS could alter your tax return and charge additional taxes, penalties and interest. You can then pay the additional money to bring your audit to a close.
  • The IRS could alter your tax return and charge additional taxes, penalties and interest. You can reject the conclusion, file an appeal and provide additional information to back up your claim.
  • The IRS could verify the information and determine that it’s accurate: In this case, the audit comes to an end and you don’t have to take additional action.

Even if you have nothing to hide, a tax audit notice isn’t something you want to find in your mailbox. If you’re facing an audit, learn more about your legal rights in California and the strategy you can use to prevent additional payments or legal consequences.