Minimize the pain of an IRS audit with a little preparation

You’ve received that most dreaded piece of mail: A letter from the IRS informing you that you have been selected for a tax audit. Before you start imagining yourself serving time in the big house for tax fraud, remember that not all audits turn out badly.

If you’ve kept good records, engaged in efficient financial planning and were honest on your tax return, the experience will likely be little more than an inconvenience. Many audits result in no change to the total tax owed. Some even yield a refund.

The IRS performs audits to determine if you accurately reported income, deductions and/or tax credits. Here are a few simple steps you can take to help the IRS do its job as efficiently and painlessly as possible:

GET READY

Re-acquaint yourself with the return in question and sort through your records to make sure you can document the numbers you reported. If you can’t find what you need, make any necessary calls to secure another copy or consult a tax professional about providing alternate forms of proof.

GIVE JUST THE RIGHT AMOUNT OF INFORMATION

 Be prepared to provide the exact information the IRS requests, but nothing more. Your audit letter will tell you what the IRS is questioning--bring only the documentation that pertains to that issue. Be pleasant with the IRS official, but don’t get too chatty. It’s easy to share too much information, particularly when you’re nervous.

STAND YOUR GROUND

Don’t let the process intimidate you. According to IRS Publication 556, Examination of Returns, Appeal Rights and Claims for Refund, you have the right to record your audit, have it be held at a time and in a location that is convenient to you and appeal the findings if you disagree with them. For full information, visit http://www.irs.gov/ and search for Your Rights as a Taxpayer.

GET PROFESSIONAL HELP

If the issues in question are complicated, consider hiring a tax professional to help you prepare for the audit. Or, if you paid someone to prepare the return in question for you, call on him or her to handle the audit for you. In many cases, your tax preparer will arrange to attend the audit as your representative, allowing you to stay home.

AVOID COMMON PITFALLS

In order to maintain an element of control over the process, never, ever:

Leave the only copy of your documentation with the IRS examiner

Hand over a pile of your records for the examiner to sift through

Sign anything you don’t understand

THE BOTTOM LINE
Although an audit is a nuisance, you can and will survive. Getting your documentation in order, being smart about how much information you share with the examiner and having a pro on your side will help you sail through with a minimum of stress.