Being selected for an audit is a stressful experience.

If you’ve been selected by the IRS for an audit you could be in serious trouble. Not only could you owe them more in taxes, but failing to claim correctly could leave you susceptible to future investigations or prosecution for tax evasion and tax fraud if they deem the case to be serious enough.

Although the chances of being picked by the IRS for an audit are slim (only about one percent of individual tax filers each year), it can happen to you. So, if you’ve been selected, continue reading below where we’ve outlined the four steps you need to take.

1. Determine the Scope

Standard mail audits (which is what most citizens will be selected for) are limited to only a few items. This means the IRS won’t be looking into every detail of your taxes which should help to limit some stress in this situation. To determine what the IRS is looking into, you will need to refer to the official audit letter that was sent which will itemize exactly what they are looking at.

After reviewing the letter, if you are still unsure of what the IRS is investigating, we suggest speaking with a licensed tax professional, like us at A.P. Accounting & Tax Services who can review the letter and help you understand.

2. Gather Your Records

When you’ve been selected by the IRS for an audit you will need to get your paperwork in order by gathering proof of all the income you’ve earned. Keep in mind that even things like stock dividends, bank interest, cash payments, unemployment benefits, jury duty payments, or gambling earnings all need to be reported and accounted for as income.
If you had itemized your deductions you will also need to find copies of all the receipts as proof of purchase.

3. Prepare Your Responses

The IRS will likely send you an ‘Information Document Request’ which states which items you will need to send them in response to the audit letter. If you don’t have documents to support your response you might have to gather it from third-party sources or have these sources attest to an undocumented item in an affidavit. For example, if you made a purchase and both yourself and the provider lost the receipt you will need to have them sign an affidavit stating the exact details of the transaction.

4. Consider Appealing

Once you’ve responded, the IRS might disagree with you and reply that a deduction should not have been made or that your reported income was wrong. If this is the case you can choose to either pay the fine (if there is one) or present your facts back to them.

Regardless, the IRS will close the tax audit with their proposal and you will get a report of the findings along with a letter that will allow you thirty days to appeal. Keep in mind that as soon as the thirty days is up so too is your ability to appeal. 

If you choose to appeal, you will be sent a letter called a ‘Statutory Notice of Deficiency’. His letter will officially close the audit and allow you to petition your case to the U.S. Tax Court.

Considering how complicated the appeal process is, consider speaking with a licensed professional for advice on how to navigate it. Professionals take every audit case seriously and understand the stress that comes from being selected for one. So, if you’ve received notice of an audit consider calling us at 407-328-5001.

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