Lawrence Lawler: Hello! My name is Lawrence Lawler, and I'm the National Director of the American Society of Tax Problem Solvers. This series is on how to prepare for an IRS Audit.
Our subject is going to be the actual steps you take upon receiving that notice that your return is then one of the lucky few selected for audit.
First of all, once you have received that notice, step one, read the notice carefully. Often, these notices only ask to look at a couple of selected items on the tax return. So you don't need to pull out all of your records or spend a lot of time screwing around, trying to gather things. You might only have one or two items from your tax return being examined.
So step one, read it very carefully. When you're reading it, be sure you note what years they are looking at, because generally speaking the IRS is only going to look at one or two years at a time. And that doesn't mean that they couldn't expand the audit to include another once they get started if they are finding a problem. But they will generally narrow it to one or two years and often to only one or two items.
Alright, so be sure you know what items are in question and gather and organize the documents that support those items. Be sure that you understand the issues related to these items that they are asking about and if you feel as though you don't, make sure you get professional help. Find someone, a CPA, an Enrolled Agent or an attorney who practices in this area representing taxpayers who can help you to understand the issues. You do not want to enter into this area of challenge without knowing what the rules are.
Many times taxpayers find that they don't have all of the records that they want to have when they go into an IRS audit. So what do you do to deal with these missing records? Is there anything that you can do?
Well, first of all, you can go back to third parties who might be able to provide copies of those records that you have lost or you cannot put your hands on and see if they can give you some information in that regard.
If you can't get third party records or if you can't get them for everything, you might get a Third Party Affidavit, which is a sworn statement where they support your position that the situation was as you're claiming it was, and you get them to sign that. You have their signature notarized and it becomes a legal document, it's an affidavit.
You can actually do an affidavit yourself and give that to the IRS as part of your audit support, because even though you may not have all the documents and even though an affidavit is somewhat self-serving, because you're telling them what you want them to hear. Once it's signed and sworn to as an affidavit it does carry more weight than just simply making a statement to the IRS of this is the way you think it should be.
Now that you've some idea as to the proper mindset and how you should organize those records and how to perhaps go about creating some of the records if you're missing them and covering those items that are being questioned by the IRS, the next thing to do is to understand that there is more than one type in IRS audit, that will be our next subject.