What is an Audit?

An IRS audit is generally an impartial review of your tax return to determine its accuracy. It is not an accusation of wrongdoing. But it is important to know that you, the taxpayer, generally have to substantiate the entries on your return. The IRS does not necessarily have to disprove anything. For example, if you gave 0 worth of old clothing to a charity but did not receive a receipt or have other proof that such a gift was made, you could be in trouble if you’re audited. If the IRS questions the deduction and you cannot provide proper evidence that a gift, in such amount, was made, the deduction may be disallowed.

However, generally for certain taxpayers (e.g., individuals) whose audit began after July 22, 1998, the burden of proof changes. The IRS will have the burden of proof if these taxpayers have credible evidence relating to most factual issues, have complied with all requirements, maintained required records, and have cooperated with all reasonable IRS requests for information. Keep in mind, the burden of proof does not change on a specific issue if another provision of the tax law requires a specific burden of proof with respect to that issue.

Audit Advice

Don’t rush. Respond promptly to a notification of audit, but don’t hesitate to ask for a postponement if you need time to gather records.

Don’t lie. Answer questions truthfully, but don’t volunteer information that isn’t asked for.

Be friendly. A positive attitude will go a long way.

Keep good records. The burden of proof is initially on you.

Keep records for at least three years.

Educate yourself. Read IRS Publication 1, Your Rights as a Taxpayer. You can order this and other tax forms and publications by calling the IRS at 1-800-829-3676 or visiting www.irs.gov.

Ask for help. Call or visit the IRS for help in preparation of your tax return. Refer to your 1040 instruction booklet for a directory of telephone numbers, for recorded information or "live" help. We suggest that you contact an Audit related professional to advise you throughout the process.

Don’t let the auditor keep your original documents.

Appeal the audit if you disagree with the findings.

Come clean. If you know one of your deductions is unsupportable, admit it and pay the tax.

If you have prepared your tax return truthfully and have saved receipts to back up your deductions, notice of an IRS audit should not make you unduly nervous. IRS employees, after all, are only doing the job we pay them to do.

For More Information

References
Stand Up to the IRS
by Frederick W. Daily
Publisher: NOLO Press; 9th edition
 
Consumer Information from the Federal Government
The Internal Revenue Service (IRS) has many helpful publications such as Examination of Returns, Appeal Rights, and Claims for Refund (IRS Pub. 556.). For a copy, call 1-800-829-3676 or visit www.irs.gov.

The quarterly Consumer Information Center Catalog lists more than 200 helpful federal publications. For your free copy, write Consumer Information Catalog, Pueblo, CO 81009, call 1-888-8-PUEBLO or visit www.pueblo.gsa.gov.

Of course we suggest that you contact one of the highly experienced Auditors in this directory before you do anything. Having an experienced professional on your side to advise you through the process may save you time and money not to mention help calm your nerves knowing they’ve done this before.

How Much Does an Audit Cost??

Answer:
That depends primarily on the condition of your records. Audits are based on you being able to validate and prove your claims. If you have kept good records the cost of an audit should be reduced substantially. However, if your records are a mess you may want to find an auditor that also offers bookkeeping services. A bookkeeper can help you get your records together for a reduced hourly rate, say to per hour depending on the firm. And then the CPA or auditor will get involved after things have been cleaned up. Auditors and CPA’s typical fee’s range from per hour on the very low end to 0 or more per hour for a very specific high end audit. Whether it’s a Corp or personal audit also has an impact on your fee’s.

How do I find an Auditor for my Public Company???

Answer:
Auditors.com has many auditors listed in our directory that offer services to publicly traded Companies in both the United States as well as Canada. For stocks traded in the US markets Auditors must be registered with the PCAOB (Public Company Accounting Oversight Board). All of our members that offer services to publicly traded companies are registered members of the PCAOB.