What Will I have to Know if I Represent Myself in My IRS Tax Audit?

Have you wondered “What will I have to know if I represent myself in my IRS tax audit?”  I’ll tell you.

Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems.

So, “What will you have to know if you represent yourself in your IRS tax audit?”

The Internal Revenue Service conducts audits (also known as examinations) for 3 reasons.

1)         They want to make sure the deductions, expenses and income you claimed on your tax return is correct.

2)         They want to be sure you used the proper tax treatment of certain income and expense items on your tax return.

3)         They randomly select taxpayers to sample in an attempt to identify the percentage of US citizens who are obeying the tax code.

Taxpayers get nervous when the IRS sends them a letter telling them they’re going to be audited.  And it’s no wonder.  The IRS Examination division (which handles tax audits) has had a bad reputation for being very aggressive and unfriendly during audits. The result is that taxpayers are very afraid of the IRS.

You should never forget that you have rights. The U.S. Congress passed the Taxpayer Bill of Rights which gave valuable protections during an audit.  One of the most important rights is the right to be represented by a licensed tax professional.

The IRS is a very large bureaucracy with nearly 100,000 employees.  A problem is that IRS employees have different levels of training and experience.  Some are well trained and very experienced, but some are not.  Some are nice, but some are mean.  A problem taxpayers have is that even if their auditor seems nice, they may not realize their auditor is inexperienced until its too late in the audit.

The tax code is very complicated and confusing. If your auditor is inexperienced, this is something you, as a non-tax professional, may not be able to know until late in your audit, or if at all.  If the auditor has reached wrong conclusions about you that are going to cost you money, and the auditor is stubbornly sure that you’re the one that is wrong, even though you aren’t, this could be very bad for you.  If you wait to deal with these issues late in the audit, valuable time will have been wasted that could have been used to get the facts of your case looked at in a more correct way so you could get a better outcome.

Some audits are simple, but most are not.  Never forget that the IRS is not your friend. Their job isn’t to find things that are correct about your tax return, their job is to find things that are wrong with it.

One of the best ways to deal with an audit that’s not going good is to deal with those thorny issues as they arise in the audit.  If you wait until the audit before you try to change the auditor’s incorrect opinions, you will have missed a valuable opportunity.  You must know when the audit is going bad and take steps to fix it as soon as possible and as much as possible.

An audit is made up of two things, dealing with technical tax issues, and advocating and pushing to have your position accepted by the IRS, in other words trying to win.  If you represent yourself during an IRS audit, you will have to understand some important things:

-You’ll have to know the areas of the IRS tax code that affect your audit.

-You’ll need to know when the IRS is wrong in their interpretation of your tax return, or the tax code, and know how to convince the IRS to change their position.

-You’ll have to know the rules and procedures the IRS is required to follow during an audit, and be prepared to hold the IRS to their own rules.  For example, an IRS auditor may tell you they can’t allow you any more time to provide required documentation.  You must know how much more time can be allowed and also know how to ask for the extra time.

-You’ll need to know how to organize your backup documentation (your proof of what you put on your tax return) in a manner that will allow the auditor to quickly reach the right conclusions.

-IRS auditors prefer well organized, easy to understand documentation.  You’ll need to know how to “package” your information.  Your job is to make the auditor’s job “easy” for them, because this actually helps you win!  The goal is to make it easy for the auditor to decide that your tax return doesn’t need to be changed.

-You’ll need to know when to be quiet.  Most taxpayers talk too much.  IRS tax auditors are trained in the art of the ‘pregnant pause’.  This means they know how to ask a question or make a comment and then simply say nothing.  Auditors are trained to maintain this silence for a fairly long period of time.  They know that taxpayers will rush to fill the silence by talking about their tax return.  Oftentimes taxpayers themselves give the IRS more information than the IRS was originally looking for which means you’ll owe them more money.

-There are lots of different kinds of audits, and you’ll have to know the correct way to respond to each type of audit whether it is a correspondence audit, an under-reporter audit, a mathematical error audit, an office audit, a field audit, or a robo-audit.

-You may need to become well versed in high-level audit strategies such as alternative methods of verification of expenses and the use of estimates. If you’re missing some of your backup documentation, there may be a way to recreate some of your data which would allow the IRS auditor to allow all or part of your deductions.

-You should know how to understand the potential outcomes of an audit and how to handle each one.  Whether your audit is a ‘no change’ audit (meaning you owe no money) or your audit results in changes which you disagree with, you must know the next steps to take.