Navigating an IRS Audit: Tips and the Role of an Attorney

What is an IRS Audit?

An IRS audit is a review or examination of an individual's or organization's accounts and financial information. This review ensures that information is reported correctly according to tax laws and that the reported amount of tax is accurate.

Why Might You Be Audited?

The reasons for an IRS audit can range from random selection to specific triggers. Common reasons include:

1. Discrepancies between reported income and information on W-2s, 1099s, etc.
2. High deductions in relation to income.
3. Frequent losses reported on a business, especially if it seems more like a hobby.
4. Owning a cash-based business (such as a salon or restaurant), which might have unreported cash transactions.
5. High-value transactions or foreign income.
6. Random selection based on statistical algorithms.

Tips to Handle an IRS Audit:

1. Stay Calm: Receiving an audit notification can be unsettling, but it's crucial to remain calm. An audit doesn't necessarily mean you've done something wrong.
2. Organize Your Documents: Have all your receipts, invoices, bank statements, and other relevant documents organized. This will help substantiate your claims.
3. Respond Promptly: Ignoring notices from the IRS can lead to further complications. Always respond within the given timeframe.
4. Understand Your Rights: The IRS has a "Taxpayer Bill of Rights." Familiarize yourself with these rights, which include the right to challenge the IRS's position and be heard.
5. Consider Professional Representation: It might be beneficial to hire a tax professional or attorney, especially if your audit is complex.

The Benefits of Hiring an Attorney for an IRS Audit:

1. Expertise: Tax attorneys have a deep understanding of tax codes and laws. They can provide guidance on intricate details that might be challenging for the average person to comprehend.
2. Negotiation Skills: In some cases, the amount you owe can be negotiated. An attorney can help minimize potential liabilities and negotiate payment plans.
3. Protection of Rights: A tax attorney will ensure that your rights are protected during the audit process.
4. Minimizing Stress: Having an attorney by your side can provide peace of mind, knowing that you have expert representation to handle any complexities that might arise.
5. Avoid Costly Mistakes: Mistakes during an audit can be expensive. An attorney will ensure that all paperwork is correctly filed, reducing the risk of additional penalties or fines.

Conclusion

Facing an IRS audit can be a daunting experience, but being prepared and knowledgeable about the process can alleviate some of the anxiety. While you can navigate the process on your own, hiring a tax attorney can provide valuable expertise, ensure that your rights are protected, and potentially save you money. Whether or not you choose to hire an attorney, it's essential to approach the situation calmly, stay organized, and respond promptly to all IRS communications.  Refer back to our IRS Tax Blog for additional help