The dreaded notice appears in your mailbox.  Your tax return is being audited.

Chances of this happening are slim but increasing.  Less than 1% of business returns are audited and less than 1.5% of personal tax returns are audited. 

If you have received a notice, don’t panic and don’t take it personally.  Audited returns are selected by a computer generated process where there an item or items falls outside of the norm based on the statistics gathered from millions of returns filed. 

It is possible you can avoid an audit if you attach an explanation for an item that may be flagged as out of the norm.  Complex investment or business expenses, or higher than normal itemized deductions, may cause your return to be flagged for audit.  The return is pulled and reviewed by an examiner.  If you take the initiative of attaching the explanation on the original return an audit may be avoided.

If your return is selected the best defense is a good offense.  This means good, honest clear records. Also make sure you leave the attitude at home.  Auditors are just doing their job, they are not “out to get” anyone. 

Make sure you have the information requested.  That means double check the Tax Year in question.  Take the backup documentation to support the item or items in question.  Give them what they ask for. 

If you have a tax professional who has prepared your return, they will be the best resource in dealing with an audit.  Take the notice to them for their professional advice and make sure you give them adequate time to assess the situation.  They will best know how to handle the situation.

If you don’t have a tax accountant and feel like you need help in dealing with the situation, don’t hesitate to engage the services of a professional.   

If you do receive a notice of audit from the IRS, don’t ignore it and hope it will go away.  Be prepared to present the records supporting the item in question and make sure it is for the correct year.  Don’t volunteer information that hasn’t been requested.  Be professional and courteous.  Engage the help of a tax professional, preferably the CPA who prepared the return. 

And last but not least, if you cannot provide the supporting documentation necessary to prove or support the item in question, be prepared to pay.  The importance of good, honest and clear record keeping is a definite advantage in the audit game.  

If you need help with your financial reporting and record keeping, please consider contacting a Partner with B2B CFO®, providing as-needed, affordable services utilizing Part Time CFOs.