The Dreaded IRS Audit Notice

While we’re waiting for the TaxQuips Forum to go back up, today TaxMama® wants to discuss what to do when you get an IRS audit notice.
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Dear Family,

One of the scariest letters you can get is an IRS audit notice. Sometimes, people simply don’t deal with it. What happens if you ignore the audit notice, praying it will go away?

It doesn’t. IRS disallows all your deductions – and perhaps your dependents.  You end up with a great big balance due. Here are three simple steps to follow.

Step 1. Read the audit notice, slowly. The notice will tell you which year is under audit (generally IRS only audits one year at a time.); what forms or schedules IRS wants to examine (For instance, Schedule A – Itemized Deductions; or Schedule C – Business Profit and Loss);  and provide a list of records or documents the IRS wants to see.

It will show the audit date, providing contact information (by mail or phone) for the person or group in charge of your audit.

Step 2. Figure out where the audit is taking place – and if you should change the location.

  • Will it be a mail-in audit? (IRS      calls those ‘correspondence audits’.)
  • Must you go to an IRS office      (office audit)?
  • Or is someone coming out to your      home or place of business (field audit)?

 Step 3. Can you do this alone, or do you need help?

When there are just a few issues under examination, you should be able to pull the records, copy them, and send them off to the IRS.  If this is a field audit, you definitely need a tax pro! You want your tax pro to help you prepare, and to be by your side when the IRS shows up.

When IRS is looking at certain concepts, you need expert guidance.
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It can be in the form of advice and hand-holding. Better yet, have your tax pro handle things for you:

  • Is your business really a hobby? (losses for too many years)
  • Did you report all your income? (living beyond your means)
  • Do you really have an office in home? (there’s another business or job location)
  • Are those really your children? (someone else claimed them.)
  • Your job or business expenses are over $20,000 – are they personal expenses?

Still feeling nervous? Read about your rights and watch a series of videos.

IRS put together a video about a small business audit. Perhaps seeing how it all works will make it easier.

And remember, you can find answers to all kinds of questions about audit notices and other tax and business issues, free. Where? Where else? At

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