Facing an IRS Audit? Here’s Your Immediate Action Plan

Getting an audit letter from the Internal Revenue Service (IRS) can be stressful, but it doesn’t automatically mean you’re in legal trouble.

“Don’t panic,” says tax attorney Alyssa Maloof Whatley. “A lot of people get scared and they don’t participate. That’s a mistake. Stay calm, be rational, read the notice, and comply with the deadlines.”

Why Am I Being Audited?

Most people are audited because their tax return is flagged by the IRS computer program. This usually happens when information the IRS has on file such as wages reported by your employer doesn’t match what’s entered on your return. “For most of these, you don’t need a lawyer,” advises Whatley. “You just need to respond with the missing information by the deadline.”

Some red flags may also trigger an audit. “If you are going to take certain positions on a tax return, you’re probably going to increase your risk of being audited,” warns Whatley. These can include being self-employed or claiming refundable tax credits.

Getting a tax refund doesn’t guarantee that you’ll be audited even though you can still be audited after you’ve received the refund. Neither does filing an amended return although amended returns can be selected for an audit as well.

What to Do If You Get an Audit Letter

An audit always begins with a letter from the IRS. Knowing what steps to take will help you stay calm and keep track of everything you need.

1. Read the letter carefully. Determine what tax year is being audited and whether the numbers the IRS is using match up with the numbers on your tax return.
2. Gather your documents. The letter will outline what information the IRS wants. This could include receipts, bank statements, employment documents, and tax forms like your W-2. Make copies of everything the IRS is asking for and keep the originals.
3. Keep records. Keep copies of all communications with the IRS, including notes from phone calls.

Your audit letter should include a phone number you can call to check the status of your audit.

What happens next will depend on whether your audit is being done by mail or in person.

Correspondence Audits

A correspondence audit is the most common type of audit. All aspects of the audit are conducted by mail, including sending documents to the IRS.

1. Send your documents. Use a service with delivery confirmation if you mail your documents so you know they arrived.
2. Meet your deadlines. Send your response to the IRS by the date in the letter. Contact the IRS immediately to ask for more time if there’s a reason why you can’t meet this deadline.

In-Person Audits

An in-person audit is sometimes called an office audit or field audit. It’s an interview conducted at an IRS office or another location.

1. Check the exam date. Contact the examiner immediately to request a different date if this date won’t work for you,
2. Meet for an interview. You’re allowed to have a tax attorney or an accountant with you for the interview. The examiner may ask about your income, deductions, business operations, and other parts of your tax return. Bring all your supporting documents with you.
3. Ask your own questions. You can ask for clarification at any point or request that the interview be paused if you want to get professional help.
4. Provide follow-up documents. You can send them by mail if the examiner needs any additional documents.

How to Get Help With an Audit

“If you don’t know what you’re doing, it’s important to get help,” says Whatley. “But don’t get taken advantage of by people who say they are helping you but aren’t qualified.”

Find a reputable tax attorney or a certified financial planner who specializes in tax preparation and audits if you can afford to hire help. Whatley recommends using the Taxpayer Advocate Service if you can’t afford representation. The IRS also runs tax clinics for qualifying low-income taxpayers who need audit support.

What Happens Next

You’ll be sent a bill if you owe more taxes. You can pay the tax bill either all at once or ask to pay it in installments if you agree. You can request a conference with an IRS manager if you disagree or file an appeal using the steps provided in the findings letter.

You don’t have to do anything else if the IRS reports that there’s no change to your return.

The Bottom Line

The one thing you should never do is ignore any part of the audit process. You may face fees, penalties, or even wage garnishment if you don’t respond to an audit letter or pay any additional tax owed.

It’s good to know what to do if you’re ever audited but most taxpayers will never need to follow these steps. Of the millions of tax returns that are filed in the United States every year, only about 0.3% are audited. This number rises for individuals with incomes over $1 million but even then the rate is still less than 2%. Most middle-class and low-income taxpayers will never be audited.