Being Audited? What You Should Do

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The receipt of a letter with the IRS’s insignia instills fear into anyone who receives that fateful letter indicating that you have been selected for audit. It is uncomfortable for everyone even if you believe you have nothing to hide. Here are some tips for how to make the process easier:

  • Be Prepared. Assemble your information ahead of time and put it in some semblance of order. I usually put it in order of where it appears on the tax return so W-2’s would be first.
  • You usually have some time between when the letter arrives and the actual audit so take that time to review your return and your documentation. You have likely been selected for a reason. Most audits are not random. Review your return to see if you can figure out what they might be looking for such as too much car expense, or charitable deductions that are greater than average. The IRS publishes guidelines for common deduction percentages based on your income level.

   https://www.irs.gov/uac/SOI-Tax-Stats-Tax-Stats-at-a-Glance

  • Be prepared to hire a CPA or a lawyer. Often, the IRS may take a position that is technical in nature. You may need to spend some money to hire a professional.
  • If you hire a professional, stay away from the audit and let the professional do their job. I don’t let my client’s attend the audit because I do not want them to say something they shouldn’t.
  • Clean your house if you have a home office deduction. Part of the audit program is to visit the home office if you claim it on your tax return. Even if the auditor prepares the audit at your CPA’s office, they will come out to see that you use a defined space for your business that you have claimed a deduction for.
  • Be polite. I have always found that if I am polite, courteous and genuine, the auditor has been the same back to me. They are just doing their job.
  • Many times people receive a letter proposing to adjust their tax return based on a 1099 received which the IRS doesn’t think is included in the return. This too is an audit. Many times the information is present in the return. Simply write a professional letter and provide copies of the backup that proves you included it in the return.
  • Often you can get payment terms if the amount of the adjustment is too much for you to pay at once. This does carry interest but it is often a way to satisfy the amount owed in a cost effective manner. However, the interest is not deductible for personal tax purposes.
  • Maybe use a home equity loan to pay the extra tax due. The interest may be tax deductible this way.
  • If all else fails, Bourbon has been known to help.

John Petosa

John Petosa

Professor of Practice John J. Petosa ’95 JD is a licensed CPA and attorney who currently serves as the CFO and general counsel of a food distributor in Syracuse. He has a private accounting and legal practice that focusses on tax preparation, tax representation before the IRS and New York state, real estate law, business law and estates and trusts. Petosa is also a member of the board of directors of Geddes Federal Savings and Loan Association, a local bank. He was recently elected as a town justice in Camillus.
John Petosa

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