While many people have heard horror stories about the IRS and the methods that it uses to collect taxes, rest assured that most taxpayers should not worry.
That is because the IRS performs very few audits. Many people will never be audited in their lifetime. The truth is that the IRS is an underfunded and understaffed agency and does not have the personnel to conduct widespread audits. Still, if you are one of the unfortunate few who do receive the dreaded letter in the mail from the IRS, you should most certainly take it seriously.
One of the first things to remember if you are audited is that it may be penny wise but pound foolish to try to go it alone if the stakes are high enough. There are those who are well-versed and experienced in the ways of the IRS, and it is best to have them on your side. A professional tax lawyer can help guide you through the process. While tax attorneys certainly do not come cheap, the consequences of a disastrous audit can far outweigh the costs of hiring a lawyer. Perhaps if your total potential liability is small, you can go through the process on your own. However, if you feel that you may have a large potential liability, there is always a chance that the IRS could charge you criminally. In that instance, you will most definitely need a lawyer.
Outside of that, the first and best thing that you can do once you learn you are being audited is getting your documentation in order. An IRS auditor is generally experienced and can adhere to the age-old adage of “follow the money.” In other words, they will likely find what needs to be found regardless of whether you put the evidence in front of them. When you are organized and can present detailed invoices and receipts to the auditor, you make their job easier. While organization alone may not get you off the hook with the IRS, disorganization will frustrate the auditor, and the last thing that you need is a frustrated auditor poking through your finances.
One of the important things to remember when dealing with an IRS audit is not to attempt to get too cute with an auditor. The auditor follows established IRS procedures and guidance and their jobs are laid out for them in detail. If the auditor is an experienced one, they likely will have heard all the stories before and seen everything a time or two. If you try to engage in any subterfuge with the auditor, it will only get you in more trouble. Willful false statements can lead to additional trouble with the law. At the same time, you may earn a measure of goodwill if you simply give the auditor everything that they ask for and let them do their job. If you are combative or deceptive with the IRS, it will likely come back to bite you. The best thing to do is to be as honest and transparent as possible and hope for the best.
While you should give the IRS everything that they need, you should not overshare with the IRS. You must remember that the auditor is not your friend. The more that you give the IRS, they more questions they can ask. This will create additional possible headaches for you. The last thing that you will want to do is to give the IRS additional ammunition because they can always hit you with a bigger bill based on what they find. As a result, only give the auditor exactly what they are seeking.
The most important thing that you can do with an IRS audit is take a deep breath. If you feel like you have a large potential liability retain counsel. First and foremost, do not try to game the system because that will only make your predicament worse.