Many people automatically envision an IRS audit as a highly stressful event taking place in a darkened room like something from a detective movie. Fortunately, such a stressful encounter is a rarity. In any event, it is wise for taxpayers to remain organized and take the audit seriously at all stages.
An IRS audit is generally a request for clarification or additional paperwork regarding a mistake, error or lack of documentation on a schedule on a tax return. Upon receiving notification that an audit has become a reality, it is wise that the taxpayer immediately takes steps to thoroughly understand the scope of the audit process. The audit can proceed in three ways:
- By mail correspondence
- In person at a local IRS branch office
- In person at the taxpayer’s home or office
By understanding the scope of the audit, the taxpayer can begin collecting the information the IRS needs to make any clarifications or corrections. For example, the mail audit (also called the correspondence audit) might only focus on missing paperwork or routine filing errors that can be handled by sending the requested documents back. A field audit, however, is generally the most extensive type of audit requiring records that could go back years with supporting data provided by dozens if not hundreds of documents.
In these situations, it is important to not only follow the IRS’s lead when preparing the paperwork mentioned, but many taxpayers find it helpful to overprepare. By organizing past tax returns, mortgage statements, retirement account records and brokerage statements, taxpayers can present a clear picture of their financial situation during an audit.
An IRS audit can follow numerous paths before it reaches a successful resolution. Taxpayers must prepare any requested documents and answer questions in a timely manner. Additionally, it is wise to prepare supporting documents to ensure your statements are clear and your position is thoroughly explained through any of the three audit methods. Further, many individuals choose to seek the guidance of an experienced legal professional as a misstep can cause trouble further down the line.