How To Deal with the IRS When You’re Being Audited

By | October 12, 2011

If death and taxes are the only two certainties in life, then perhaps our second-greatest fear is being audited by the IRS. Most of us pay our taxes the way we’re expected to precisely because we’re afraid of getting audited; and yet many of us end up getting audited anyway.

There are a number of ways to prevent getting audited in the first place, of course. But sometimes you can’t help getting audited. Perhaps you came into a lot of money suddenly and gained the attention of the IRS because of it. Maybe you made a mistake on a previous tax return and this caught their attention. Whatever the reason, you’re being audited – and you need to deal with the IRS in a way that avoids penalties and further frustration. So just how do you do that? We thought you’d never ask.

Cooperation is Key

Many people make the mistake of assuming that they can either hide from the IRS – even after they know they’re being “examined,” as the IRS often puts it – or they can fight them off. The IRS, however, is a large government entity with plenty of resources, and chances are that you’re on your own. Cooperation during an audit will be instrumental in ensuring it goes smoothly.

Of course, we don’t have to remind you that dealing with the IRS in a negative way is risky behavior. Being short, aggressive, or even openly hostile won’t get you anywhere, and it certainly won’t make you any friends. Your goal is to be honest, resolve the situation and not to make any IRS agent a friend, of course. But it’s a mistake to look to make an enemy on top of that.

Sometimes, IRS audits might be conducted by mail – in this case, you don’t have to put a friendly face on. You simply have to cooperate with IRS requests, return the files and forms that are requested, and complete these tasks in a timely manner. That’s it. You can even send the mail out with a frown if you really want.

Honesty and Open Records

The easiest way to resolve any problem with the IRS is to nip it in the bud with complete honesty from as soon as you can begin. If you were unable to write off a number of possessions you listed as business expenses – and the IRS points out that these were not valid deductions – then you should agree to the changes.

The more honest and open you are about your tax records from the very beginning, the more likely it is that you’ll never be audited. And if you’re already in the process of being audited, honesty is really the only way out. Whatever tax advantages can still be gleamed at this point will have to be serious, legal, and real tax advantages that work within the confines of the tax code. The IRS, after all, is watching closely.

It’s also important to keep in mind that any unpaid taxes accrue interest at a fast rate because the compounding will often happen on a daily basis, even though the daily rate is very small compared to the “per annum,” or yearly, rate. That’s one reason it’s important to be open and honest from the outset – not to mention make your payments as quickly as possible. Sometimes people will even make payments to the IRS before they’re officially obliged to simply because it saves so much money.

Appealing the Process

Of course, there is a way to appeal your case after what happened during an IRS audit, though usually these appeals rely on some sort of mistake that occurred. After all, it will be difficult to win any appeal in which the initial proceedings went off without a hitch. Typically it will be a good idea to work with a tax attorney for an appeal, at which point you have to ask yourself whether your actions are costing you more money – or truly represent a chance at ultimately saving money. The more you owe the IRS, the wiser it is to hire a tax attorney.

Ultimately, if you get audited by the IRS, you’ll find there are very little avenues through which you can save money. You owe the government what the government asks of you within the confines of the tax code. Settlements can sometimes be reached, of course, but if you’re unable to pay for the taxes you haven’t filed, you could be in serious trouble. That’s why being open and cooperative with the IRS from the beginning is so important – you don’t want the agent to be your enemy.

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