6 Critical Audit Rules To Help You Turn The Tables On The IRS

Audits are the IRS tool for keeping you “honest.” This may seem ironic, but most of the time your taxes are based on the honor system. You report your earnings and deductions, you calculate how much you have to pay, and you make your tax payments to the IRS.

However, the IRS checks up on a number of tax returns each year, in the form of an audit. If you are subjected to an audit, it doesn’t mean you are automatically in trouble, but it means the agency wants to make sure you told the truth on your tax form.

In theory, audits should only be a minor inconvenience. If the IRS checks on you, just prove that what you put on your form was truthful. Unfortunately, it doesn’t always work that way.

That’s because tax laws are subject to a lot of different interpretations. Even though you reported your taxes honestly, an overzealous IRS auditor may disagree with your reasoning.

In fact, there’s strong evidence that the IRS may use audits purely as a means to try to extract more money from taxpayers. If this happens to you, here are 6 rules about audits that can help you avoid extra taxes, along with possible penalties and interest.

Rule #1: Keep Good Records

Document everything related to your audit. Keep records of every meeting or telephone conversation with IRS agents. Record the date, time, and what was said. Also keep copies of any mail or email that you send or receive from the Internal Revenue Service.

There’s an important reason to do this. It’s possible you may encounter an unusually incompetent auditor. It’s even possible the agent who handles your audit is downright rude and abusive. By keeping good records, you’ll have the evidence later on to appeal your tax return audit.

Rule #2 Stick to the Audit

When you undergo an audit, the IRS usually investigates your tax return for a given year only. If you’re audited for your 2007 tax return, for example, the auditor shouldn’t demand information about your 2006 or 2005 returns.

If they ask you for any information that’s not directly related to the tax year being audited–for example, if the auditor wants to see your investment earnings from 2006 “for comparison” or any other reason–politely remind them that the audit is for 2007.

Rule #3 Control the Information

Be polite but firm when you deal with an IRS agent. If they ask for information and they have the legal right to do so, you have to comply. But don’t ever volunteer anything they haven’t asked for. There’s a reason for this.

The agent’s job is to extract as much tax revenue as possible from you. Your job is to hold on to as much of your hard-earned cash as you can. One strategy is to not actively help the agent who conducts the audit.

Rule #4 Take Advantage of the Auditor’s Biggest Weakness

Your auditor may be overworked. He or she is probably handling several audits at once. You should be polite, but not overly helpful, without openly doing something that could get you in trouble. The IRS agent may be willing to simply drop certain points of your audit that would otherwise work against you.

Force them to dig for everything, while asking for any needed extensions of time, and you may tire them out in the end. Which brings us to a very protective tactic that may help you.

Rule #5 Protect Your Dangerous Secrets

The agent conducting your tax return audit may ask for some information that is potentially damning. You can’t outright refuse to provide it, but you may be able to delay these “Black eye” items.

Tell the agent that you didn’t bring the document, but that you will work on getting it if they will give you more time. Explain that you’ll need to look it up. You may also say, “I’ll have to talk to my attorney about that.” In the end, they might drop the matter.

Rule #6 Appeal Your Audit

If the final outcome of the audit is not in your favor, appeal it. As soon as you appeal an audit, your case is assigned to an Appeals Officer, and the priorities of Appeals Officers are changed.

You may find this article on Audit Appeals and Reconsideration useful. Audit Reconsideration While the audit may be a procedure designed to extract as much money from you as possible, the goal of an appeals officer is to settle the matter as quickly as possible. You may potentially be able to reduce your tax bill substantially with an appeal.

An audit is almost always an unpleasant experience, but when you understand the rules of the game, you can get through your audit, minimize the financial damage, and quickly bring your life back to normal.

For a FREE Consultation on solving your IRS problem call at 1-800-209-5770.