Preparing Yourself For an IRS Audit

Preparing Yourself for an IRS Audit Č Each year the IRS audits many people. If you have an audit you should already have learned how the process works. This article, however, will give you an overview of what should be expected as you prepare for your audit.

About your audit

You should prepare yourself for both line items on the audit letter and for possible follow-up with a request for more information. Line items can be very detailed and may require information from other records or accounts of yours. The audit letter will typically request some basic information, including familiarity with the type of returns you have filed for the previous two years. Schedule B is used to list income and expenses for your business and personal tax returns, and the audit letter will likely ask for data related to these items.

You should set aside a few days or weeks for your audit. Generally, audits are conducted by phone, mail, or in person. Schedule B is signed by the auditor and the appointment for the audit is usually scheduled in advance. You will not be called for a surprise audit by the audit team at a, particularly difficult audit. If it is a good year! You have no reason to be nervous or to worry.

The audit

Right about now is when you start to get nervous – what will stand between you and the results of your audit is the information that you end up with after comparing the audit letter with your tax records. Listen for these words.

Radiant understatement of income – significantly

Inaccurate accounting – in the amount or percentages

Operating while no business – in the business name

suites tax evasion

wiring or falsifying documents

the belief that unreported income is a substantial understatement of income or

you suspected classified List B misreported income.

You will need to back up for all of this. When you receive the audit letter, and you know you’re in trouble, ask yourself from whom you are receiving information. Do you know that the auditor is a seasoned field agent? Do you know where his knowledge came from? Do you know what his agenda is? If your auditor does not tell you where he came from or his agenda, question the audit.

The solution to your audit

OK, this is where it gets tricky. You can either a) go ahead and take all the steps you can to clear your audit or b) hang on for a while, but with increasing frequency. If the year of an audit is not too difficult, and you feel you can do it on your own without legal or IRS problems, go ahead. If, however, you’ve raised your audit risk assessment since the audit of 2006 and back up, consider consulting with a tax professional or even conduct the audit yourself.

If you are fortunate enough to choose to have your audit reviewed by a tax professional and the implications are positive, follow these guidelines for your audit:

– Review of business records concluded

– Based on the advice of your tax professional, you should prepare to file for delayed deposits in which you will be due a refund of the overpayment. If the tax overpayment is currently more than $5,000, you’ll need to file all your responses fromundandemoney with Form 7004 and give an explanation as to why the tax was overpaid. Assuming there is evidence of a reasonable cause, you’ll then need to decide that you in fact lack a sufficient mitigation plausible order of explanation. You should not be able to demonstrate that the overpayment occurred because of events outside your control or with no fault of your own.

– Based on your tax professional recommendation you’ll need to decide whether or not you’ll need to file an amended tax return. One way or another Form 941 will only be filed to substitute for your corrected tax return. Of course, the slip route is always followed if this route is chosen.

– If you’ve purchased a new car since 2006 you must report. Unless your audit determines that it’s a first or second vehicle, you will need to complete as a condition of the audit that you give the title to your new vehicle. Not only will you be liable for the sales tax use (if applicable) but you will also need to pay the title insurance premium through the Automobile Tax File Loss Credit Account. You should also notify the IRS if you buy a new vehicle in 2007 or 2008. They will send a revenue officer out to get the title.

– You’re probably aware that you need to keep an accurate log of mileage to calculate your vehicle’s mileage. Unless your audit informs you that it’s deductible on your tax return, keep in the habit of trying to calculate it for a period before and after your audit date or seek a footprint disclosure.

Audit depths, yields, fuel costs, and mileage

Dos and Don’ts for business vehicles

Do keep accurate mileage records.