Getting a letter from the IRS notifying you of an upcoming tax audit is never a welcome event. At the very least, it can be a major inconvenience. At worst, it could mean the possibility of criminal investigation for tax fraud. Knowing how to proceed when you are notified can help you prepare for the worst while hoping for the best.
Types of IRS Audits
Not all IRS tax audits are the same. When notified of an impending audit, carefully read the verbiage used in your letter. IRS tax audits are often pursued if information on your tax return doesn’t match the IRS records or inconsistencies are found, but they can also be random selection or for the collection of data. The type of tax audit requested can help you determine what you should do next:
- Correspondence audit. This is the simplest type of audit, with the IRS only asking for documentation to support items on your tax return that can be mailed to them without an in-person audit.
- Office Audit. This type of audit requires you to bring requested documentation into an IRS office.
- Field Audit. A field audit will be conducted at your home office or place of business where your records are kept.
- NRP (National Research Program) audit. A limited number of taxpayers are subjected to NRP audits, which are done so that the IRS can collect statistical information. An NRP audit will require documentation of all aspects of your tax return.
If you are only asked to send documentation of a single line item on your tax return, this can be a relief. The IRS may only want a copy of an invoice for a large purchase or expense, an easy request to fulfill through correspondence. However, if you have received notice of an office, field or NRP audit, you will need to prepare for a more extensive investigation.
Preparing for Your Tax Audit
In many IRS tax audits, you will be asked to provide documentation for certain tax years. This is usually within the last three years but some investigations can go back up to six years, or more. You will need to compile all supporting documentation and records. However, knowing what you must provide it important; you only want to give the IRS access to information that must be legally provided.
If there are large dollars at stake the first step in preparing for your tax audit is contacting an experienced IRS tax attorney. Knowing your rights and having a professional tax expert on your side can help relieve the stress of an audit, while protecting you from accidental self-incrimination. At Brager Tax Law Group, our former IRS tax attorneys can advise you on how to proceed before, during and after a tax audit. Call us at 800.380.8295 to schedule an in-person consultation at our Los Angles offices. For those outside the area, fill out the online form on our website to request a Skype consultation.