First, it should be noted that the decision to represent yourself in an audit should be made carefully. Examination changes during the audit process can ultimately be extremely costly with the extra interest and penalties that the auditor may add to your final tax bill. Even though audits are different for everyone, I have compiled a few helpful tips to assist those who ultimately decide to represent themselves.
IRS Audit Tip #1: See the Playing Field
The IRS has limited resources and taxpayers mostly do not get audited by the government without a reason. This does not mean you have done anything wrong, but you may have unusual circumstances like working in a cash intensive business or have an unusual deduction that the government wants to take a second look at. The most valuable indication of what the government is after is the auditor’s Information Document Request (IDR), which is provided when you are initially contacted by the IRS. By understanding what the government is looking for, you can start mentally preparing and organize your documents in the most efficient way to provide the most complete substantiation possible. The more complete your substantiation is for an item requested, the less likely the government is to challenge the information stated on your return for a particular category.
IRS Audit Tip #2: Limit the Scope of the Audit
The IRS typically has three years to request examination of a return, except in the cases of late/no filings, significant errors or omissions in the reporting of income or expenses, and fraud. Because the significant case load of the auditor, the IRS will normally start auditing with one year and then open up other years if there are examination changes. As counsel, my number one priority is to limit the scope to only one year and that should likewise be your goal as well. Opening other years will often equate to more changes and ultimately increases the size of your final bill.
IRS Audit Tip #3: Control the Flow of Information
Taxpayers representing themselves have the distinct disadvantage of having to answer the auditor’s questions point blank when asked. You should never lie or make a material misstatement to an auditor, as this is a federal crime that carries possible jail time. During the audit, however, taxpayers should make every effort to control the flow of information. Carefully listen to the questions that the auditor is asking and answer only the question being asked. Do not provide more documents than what is being requested by the auditor. More information gives the auditor more ammunition to make assessments and, therefore, brevity is the key to successfully navigating an audit.