Napier & Company, LCC

Tax Audits

The IRS audits hundreds of thousands of individual tax returns each year. With proper preparation and planning, you should fare well in the event you are picked for an audit. The purpose of the audit is to verify items reported on your tax return. The easiest way to survive a tax audit is to prepare for one in advance by maintaining good documentation and support for your return in the form of invoices, bills, cancelled checks, receipts or other any other proof that supports your return. You should have support for all items that are reported on your tax return. You should keep all your records and calculations in one place for each year.

The government normally has three years that they can go back to conduct an audit. Usually the audit will not begin until a year or more after you file your return. Given this, it is important to leave a good trail so you don’t have to rely on your memory. If you have to go back to your records later, you should be able to backtrack all of the entries on your return.

The type of audit depends on the complexity of the return being examined. A return reflecting business or real estate income and expenses will usually take longer to audit than a return reporting only salary income. You can help by having the necessary records arranged in an orderly and systematic fashion for the IRS agent to review. The typical IRS agent is experienced and knows their job. Trying to outsmart the agent or sidestepping questions is likely to create friction and raise suspicions in the agent's mind.
 

Even if you prepared your own return, it is often advisable to have a tax professional represent you at an audit. Your representative knows what issues the IRS agent is likely to focus on and can prepare accordingly. More importantly, a tax professional knows that in many instances IRS agents will take a position (i.e., to disallow deduction of a certain type of expense) even though courts and other authority have expressed a contrary opinion on the issue. Because the representative knows and can point to the proper authority, the IRS agent may be forced to agree.