IRS Audit Survival Guide

Facing an IRS audit can be stressful, but with the right preparation and understanding, you can navigate the process smoothly. This guide provides an overview of what to expect, how to respond, and how to minimize your risk of future audits.

1. Understanding IRS Audits

What Triggers an Audit?

Disproportionate Deductions – Large deductions compared to income.
High Income – Earning over $200,000 increases audit likelihood.
Excessive Business Losses – Recurring losses in a sole proprietorship.
Cash Transactions – Businesses with high cash intake (e.g., restaurants, salons).
Failure to Report All Income – Mismatches between reported income and IRS records.
Large Charitable Contributions – Deductions inconsistent with income level.
Round Number Deductions – Repeated use of even numbers signals estimation.

Types of IRS Audits

Correspondence Audit – Conducted via mail for minor discrepancies.
Office Audit – Requires visiting an IRS office for document review.
Field Audit – IRS agent visits your home or business.
Taxpayer Compliance Measurement Program (TCMP) – Comprehensive audit reviewing all aspects of return.

2. How to Prepare for an Audit

Before You’re Audited:

Keep Accurate Records – Maintain receipts, invoices, and tax documents for at least 3 years.
Use Professional Tax Software or a CPA – Ensure accuracy in filings.
Be Consistent with Deductions – Avoid red-flag behaviors such as claiming excessive expenses.

If You Receive an Audit Notice:

Do Not Panic – Most audits are routine and not criminal investigations.
Review the Notice Carefully – Determine what the IRS is requesting.
Consult a Tax Professional – If unsure, seek CPA or tax attorney assistance.
Gather Supporting Documents – Provide clear and organized records.
Respond by the Deadline – Missing deadlines may lead to penalties or assumptions against you.

3. Navigating the Audit Process

During the Audit:

Stay Calm and Professional – Avoid unnecessary conversation; answer only what is asked.
Provide Only Requested Information – Do not offer additional documents beyond the IRS’s request.
Be Honest and Transparent – Misrepresentation can lead to penalties or criminal charges.
Request Extensions If Needed – More time may be granted to gather documents.

If You Disagree with the Findings:

Request an Appeal – File a protest with the IRS Appeals Office.
Consider Mediation – The IRS Alternative Dispute Resolution (ADR) program may help.
Take Legal Action – If necessary, challenge in Tax Court.

4. Avoiding Future Audits

Best Practices:

File Accurate and Complete Returns – Double-check entries and match reported income to IRS forms (W-2, 1099s, etc.).
Document Every Deduction – Maintain clear records for all business and personal expenses.
Avoid Unnecessary Red Flags – Don’t exaggerate deductions or report suspicious figures.
Use a Professional Tax Preparer – Working with a CPA minimizes errors.
E-file Your Return – Electronic filings have fewer audit triggers than paper returns.

5. Key Takeaways

Audits are often triggered by inconsistencies, unusual deductions, or high income.
Maintain clear financial records and file accurate tax returns to minimize risk.
If audited, stay calm, respond professionally, and consult a tax expert if needed.
Avoid future audits by ensuring transparency and accuracy in tax filings.

Need help dealing with an IRS audit or preventing one? Contact Dylan Razzagone, CPA for expert assistance!