There are three types of IRS audits. I’ve listed them in order in order of scariness:
1) Mail correspondence audit
As the name suggests, this type of audit is conducted via mail correspondence. These audits may occur if there was a simple mathematical error in your filing. Typically, the IRS will have corrected the problem and the letter they send you is to inform you that they’ve altered your filing. If you look over their changes and agree with them, the audit is closed as soon as you send a check to cover the amount you owe. If you disagree with their findings, you can write and explain your side of the story. This may lead to the second kind of audit.
2) IRS Office audit
This is the kind of audit I had in 2009. Inside the fat envelope the IRS sent me was a very formal letter informing me that I’d been “selected” to be audited. Along with the letter were several pamphlets about my rights as a tax payer. The letter included details about the time and date my audit was scheduled. It also mentioned the name of the auditor assigned to my case. I was given one month to prepare. I was thankful for this.
3) Field audit
From what I’ve read and been told, this is the type of audit you really want to avoid. The auditor (or team of auditors) visits your home or work site. Basically, you are totally exposed. The auditor looks around and inspects everything. And depending on what the auditor sees, they may expand the scope of the audit. With the IRS Office audit, you have much more control. You take specific documents and documentation and are obligated only to discuss X topic. Field audits, on the other hand, are wide open. Anything and everything can be examined and looked at.
Hiring a lawyer to represent you:
When I told friends and family I was being audited, they inquired if I was hiring a lawyer. I prepare my own taxes and I know my paperwork inside and out. Also, I had nothing to hide, so I didn’t see the point in hiring a lawyer. I went to the audit by myself. And I survived. If you’re one of those taxpayers who intentionally did something wrong (like hiding large amounts of money in Switzerland, at UBS, for example), I would call a lawyer pronto.
What to do during the IRS office audit:
- Be friendly. Don’t get defensive or hostile.
- Even though the IRS is attempting to get money out of you, try to work as a team with your auditor. S/he has a lot of discretion they can apply to your case. If you’re nice and easy to deal with, they will treat you the same.
- With an IRS office audit, you are typically being audited on one section of your tax return. For example, I was audited on my medical expenses. Remember that it’s your right to only discuss the tax topic mentioned in the letter the IRS sent you. If you think the auditor is trying to pry more information out of you, feel free to show the auditor your letter and remind him/her that you’re only there to discuss X topic. You can say this in a firm but friendly manner.
- Related to the previous point, keep your mouth shut and don’t offer more information than is necessary. If you tend to babble when you’re nervous, this may be difficult for you.
- Get yourself organized. By this, I mean: organize your receipts in chronological order. If you have various “proof of payment” documents (e.g., bank statements, credit card statements, online bill payer receipts, paper receipts, insurance statements) make a list of which proof of payment corresponds to which expense. When the auditor asks, “How did you pay for this expense,” it’s very handy to have a spreadsheet where you can cross reference the doctor’s name or date of service with the payment method.
- Bring a calculator, notebook and pencil to the appointment. The auditors work pretty fast and it’s best to do the math on your own calculator, with them. My auditor and I had several discrepancies with our calculations. Because I had a calculator, I could quickly add up a handful of receipts and show her where she had made a mistake.
- Don’t assume auditors are perfect. They’re humans; they have worries and frustrations, and they make mistakes. Keep pace with your auditor and double check their work (in a friendly and non-threatening manner). :-)
Next up… unexpected and interesting twists and turns of my audit.