The audit process
You received a letter from the IRS and your heart drops. The IRS has selected your tax return for the IRS audit. What do you do? Why was your return selected? How do you respond? Do you need to hire help? Learn the IRS tax audit process before responding.
In an audit, the IRS is simply questioning an item or items that you reported on your tax return. For example, the agency may question whether you actually reported all of your income, or claimed legitimate tax deductions. In most cases, you will need to provide additional documentation to support the item in question. The auditor will review your support, and you may be required to pay additional tax if there is a change to your return or an accounting error is discovered.
The IRS always initiates audits by sending a letter in the mail. The initial letter you receive will contain contact information and instructions for sending the IRS information about certain items on your tax return.
You may be asked to send in receipts, canceled checks, payroll documents, loan agreements, and legal documents, among other documentation. The auditor may also ask you to fill out certain questionnaires to obtain more information. Common questionnaires include a general questionnaire, a car and truck questionnaire, and a travel, meals, and entertainment expense questionnaire.
Send in copies (never originals) of the requested documentation. Try to organize the documents by category and include explanations wherever they may be beneficial. Whichever delivery service you choose to use, always obtain a delivery confirmation.
The IRS will conclude the audit after the auditor reviews your documentation. If you’ve substantiated all the items on your return, the audit will conclude with no changes being proposed. If the auditor proposes changes to your return, you will either agree or disagree. If you agree with the proposal, you will sign a form or report and make arrangements to pay any additional amounts owed. If you disagree with the changes, you can request a conference with an IRS manager, file an appeal, or request mediation.