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Tax Audit CPA gives tips on what to do if you’re Audited by the IRS | Back Taxes

IRS Tax audit CPA

During an IRS tax audit don’t open up other issues or other tax years. (910) 399-2705.

IRS tax audit CPAs don’t panic when a client gets audited, especially if they’ve prepared the underlying tax returns. But I can easily imagine my sphincter reflex if that IRS notice came to me. Especially if had un-filed back taxes. Here are some tips.

Not all Audits expect to find tax issues

The IRS runs sophisticated database systems. It’s said they run “random” audits on 1% of all tax returns, just to establish their own internal benchmarks.

The IRS isn’t always right

The IRS makes mistakes too. But more often they aren’t seeing the whole picture. A typical scenario an IRS tax audit CPAs sees? The IRS has accurate information about income for you or your company’s tax return. But they’re missing deductions and tax credits. For example, if you don’t file a tax return, eventually the IRS prepares a “substitute” return for you. The IRS has w-2s and Form 1099-MISC(s) on file, so that’s all they base their demand on. Preparing those back tax returns, or amending prior returns allows us to present the flip side of that coin; legitimate business expenses to offset that Form 1099-MISC income.

Record Keeping

Tax audit CPAs recommend keeping complete records for at least seven years. I know the Internet chatter says three years, but the IRS usually finds justification to go back further if they like. Technically you don’t even need receipts for small transactions but keep them anyway. Remember you can have supplemental information too, like pictures and a Police report to corroborate a Casualty loss on Schedule A of Form 1040.

“Don’t panic if you’re missing some documentation for the IRS tax audit. Sometimes you can legitimately reconstruct your records.”
– Gary Bode, IRS tax audit CPA

Reconstructing Tax Audit Documentation

You can reconstruct tax records? Sure. Say you claimed a Home Office deduction in 2012. You moved in 2013 and lost some records. You receive an IRS Notice in late 2013. They’d like some proof about your home office. You may have a picture of you in your home office. The electric company gives you a summary statement for 2012. The bank provides duplicate bank statements showing the rent being paid. Your CPA has a file on your 2012 accounting software. Etc.

Try to Keep the IRS away from your Home or Office

If possible ask to bring your documentation to them.

Handling a request for your Company’s QuickBooks

Yes the IRS can ask for that, and give you little time to do so. And I’ve never seen a set of “perfect” books. But you can go through the books too and have reasonable explanations for various issues should they come up in conversation.

Your Tax Audit CPA

I think an important function of a tax audit CPA is limiting the scope of the audit to relevant parts of the tax return. This saves time, audit stress, audit expenses etc. Amateurs inadvertently encourage the IRS to audit more areas than they originally planned. And/or open up issues on other tax returns. At some point, the average taxpayer is better off hiring a tax audit CPA. I’m not saying you always need one, especially with low-level audits, but when there’s a lot at stake, professional representation makes sense.

Asking for a Revenue Agent

Sometimes getting an IRS agent involved is better than dealing with a computer, the way most audits start.  Low level audits are computer generated. Overlapping notices, multiple requests for the same information, threats etc. make the audit procedure stressful. An Agent can cut through that. But getting an agent assigned can be difficult.

Don’t Poke the Bear

Sometimes a client actively agitates an auditor. For example, I had a $1M/Y year attorney who was cavalier about the agent’s needs. The tax auditor was professional, but no one likes being baited. You just don’t poke the Bear.

Know your Rights as a Taxpayer

You have rights during a tax audit.The IRS publishes these. It pays to go into an audit prepared.  Be aware of them, and use them when needed.

Go the Audit Prepared

Any IRS tax audit deserves your full attention. Be aware of the tax issues. Read the appropriate Audit Technical guidance PDFs on the IRS website. Know your books backwards and forwards

I’m a tax audit CPA with a virtual office to serve long distance clients. If you need help, and don’t have a local tax audit CPA, or just like what you read on this site, consider giving us a call at (910) 399-2705.

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