Although we all hope to never be audited, the May 2010 issue of Money magazine offers the following tips in the event you receive a letter from the IRS.
Audits are on the rise - Tax returns (generally 1040s) selected for audit tend to be self-employed or have unusually large write-offs. Audit risk by income level: under $200,000: 1%; $200,000 - $1 million: 2%; more than $1 million: 6%. Audit letters are typically mailed 18 months after the filing date.
Don't delay your response - Take the required action within the given time frame -- usually 30 days. If you need more time to gather information for your response, ask the IRS for a postponement. Otherwise, the dispute becomes a final assessment and the collections process begins.
Have a pro on your side - A simple audit (request for receipt copies or additional information) can be handled by the taxpayer. However, if someone else prepared your return, have them handle the audit request.
Anything you say can be used against you - Even "small talk" might give the auditor reason to expand the scope of the investigation. If you hire representation or authorize your preparer to handle the audit, you don't have to attend a face-to-face meeting.
The auditor's boss may be able to negotiate - Ask to speak with a supervisor if you are unhappy with the auditor's findings, especially if the issue falls into a gray area. If you are still unhappy, file an appeal.
Honest taxpayers generally don't get singled out for audits. However, if anything on a tax return stands out as "unusual" compared to previous years, be prepared to provide necessary documentation for the "unusual" situation.
To read the full article, click here.
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