There are few
rules about who gets audited and why. Maybe it's something you
did; maybe it's something you didn't
filers are the least likely to be called in for a chat with the
owners are at greatest risk, three times more likely than wage
earners, reports Money
The odds go up
with your income and number of deductions. The more gray-area
chances you take, the greater the probability. Then there's just the
luck of the draw, the random name spit out by the
Win or lose, an
audit can be a traumatic event. The cost in terms of time, worry and
the disruption of your life spent on the quest for paperwork can be
high. Also, keep in mind that, even though the audit itself is not
an automatic indication of guilt, if the IRS calls you in, it
expects to come out of it with at least some additional money. Your
goal should be to get it over with as quickly and painlessly as
should you handle an audit?
your records in order. This creates less work for
the auditor (which helps) and shows that you are well
organized. Don't dump a
shoe box full of receipts on the auditor's desk. That's just asking for
in prepared. Don't rely on the IRS to
tell you what's wrong.
While auditors are just trying to do their job, that job is
to find money in your return.
The audit notice will explain the points of inquiry. Go in knowing whether or not
you believe the grounds are valid. Have a response and a
strategy ready to present. It is best to go with legal
provide the information that was
requested. Most audits focus on
specific items. If the
auditor didn't request something, you are not required to bring
it. The problem:
Bringing unrequested documents can open other areas of inquiry.
professional representation. This is not the time to
pinch pennies. You have the legal right to be represented by
attorney, and you should take advantage of that
opportunity. At the
very least, even if you don't use an accountant to prepare your
returns, get one's advice before going in. It could save you a lot.
go in with a chip on your shoulder. This is not the time to
voice your feelings about the unfairness of the tax system or the
intelligence level of the people who work for the government. Don't give the auditor
reason to want to dig for something. At the same time, don't be
intimidated. Be cordial, friendly, cooperative... yet firm.
anything that you don't fully agree with or understand and unless it
is approved by your Tax
Attorney. Insist on time to review all documents and
to discuss them with your attorney or accountant.
Negotiate. Never pay a penalty without
at least attempting to have it set aside. Do the same with interest
charges on any money you may owe.
IRS Focusing on Audits of S
The IRS has known for years that S corporations
are sometimes used to circumvent federal income and employment
Despite this, relatively few S corps and shareholders
have been audited in recent years. However, things are changing.
The IRS has announced that the number of S corps has "exploded"
in the last 20 years and it plans to increase scrutiny
businesses that operate this way. In other words, S corps and their
shareholders are no longer flying beneath the IRS radar.