Receiving notice of an audit can easily strike fear into any taxpayer’s heart. What happens when the IRS audits you? How much will this disrupt your life? And most importantly, are you going to get in trouble with the IRS? These questions can easily send you into a panic.
That’s why we put together this guide on what happens when you get audited by the IRS. It can all be broken down into 4 steps:
1. Notice of IRS Examination
Every IRS audit begins with a notice of examination that will be mailed to you. The IRS will never call, text, or email you to initiate an audit.
An IRS audit notice contains important information, such as:
- The audit examiner’s name and contact information
- Which tax years are being examined
- The deadline to respond
Typically, you will have 30 days to respond to an IRS audit notice; it may or may not contain a suggested time and place for the first meeting with the examiner. Don’t make the mistake of thinking this meeting is set in stone—you can request more time to prepare your documents, or request another location.
It’s never too early to secure a tax attorney to help with your audit; in fact, it’s best to do so as soon as you receive the notice of examination. If you hire professional audit defense, you’ll need to sign a Power of Attorney form, which we will send on your behalf in response to the notice.
2. Supply the Requested Audit Documents
Your audit letter may request specific documents for you to send. If so, you or your representative should prepare, organize, and send the auditor this information according to the instructions in your notice. However, this information isn’t always included.
Pro tip: If your audit notice did not request specific documents, you or your representative should respond to the notice and determine what the IRS examiner needs to see. Do not send documents that haven’t been specifically requested, as you could risk increasing your assessed tax bill, penalties, or likelihood of referral for criminal prosecution.
3. IRS Examines the Records
Your audit examiner will review the initial documents to determine the scope of the audit and which areas to focus on. It’s very likely that throughout the process, you will receive additional Information Document Requests (IDRs) asking for specific records.
An IRS audit can be conducted by mail or in person. Learn more about the different types of IRS audits.
The bulk of what happens when the IRS audits you is the examination of your tax returns and records. The purpose of an income tax audit is to verify that you correctly reported all of your income and that you were actually eligible for any tax deductions, credits, or exclusions that you claimed.
In other words, the IRS wants to ensure you paid the correct amount of tax. You should be prepared to verify each of these items with the proper records.
The IRS examiner may or may not request an interview to ask questions about specific items on your tax return. Keep in mind that anything you say to the examiner—as well as anything you say to an accountant who is not a tax attorney—can be used against you if the audit proceeds toward civil or criminal litigation. It’s best to let your representative speak for you to avoid any costly mistakes. Better yet, we can often arrange it so that you don’t need to meet the examiner in person at all.
During the audit, the scope of the examination may increase to include additional tax returns. Learn more about how far back an audit can go.
In some cases, the examiner may ask you to extend the statute of limitations for assessing tax on certain tax returns. If that happens, be sure to consult a tax audit attorney about the pros and cons of granting the extension.
4. Assessment of Tax
Now comes the part that everybody fears: a bill from the IRS. More accurately, the IRS will conclude the audit by sending a Notice of Proposed Adjustment stating how much the examiner thinks you owe—however, this amount is not necessarily final, and the collections process is completely separate from the IRS audit process. Download our IRS Audit Survival Guide to learn more about your options after the examination.
Keep in mind, too, that some audits result in the IRS owing you, not the other way around!
Now that you know what happens when the IRS audits you, we hope you feel more prepared for an income tax audit. If you need help with an audit or your tax returns, give us a call at (312) 471-0126 or contact us online.
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