Irs Audit – What to Do When The Irs Contacts You
The thought of being contacted by the Internal Revenue Service (IRS) can send chills up your spine, but it doesn’t have to be that scary. You just need to know how to handle things the right way.
The IRS conducts about a million taxpayer audits a year. And while the words “IRS audit” may conjure up an image of facing a ruthless inquisitor, more than two-thirds of all audits are conducted via correspondence rather than face to face. Thousands of audits even result in refunds to the taxpayer.
Contact from the IRS is nothing to be afraid of, but it should be taken seriously. It could be anything from a routine procedure to notice of a potential problem to an out-and-out scam. Knowing what to do can help you make the best of the situation.
What to Do When You Are Contacted by the IRS
- Consider the source – it may be a tax scam
IRS scams, in which thieves pose as IRS agents and contact taxpayers, are a persistent problem. In some cases, getting victims to make bogus tax payments or pay fictitious fines can mean instant dollars for a scammer. Identity thieves may play a longer game, using the contact to get sensitive personal and financial information from you that they can use to drain your accounts and abuse your credit in the future.
The people behind these tax scams count on the fact that being contacted by the IRS can throw even the most honest taxpayer into a state of panic. Naturally, people feel a certain pressure to comply and often don’t think clearly in the moment — which makes them easy prey for someone with dishonest intent.
However, the IRS advises you that they never contact people by phone, e-mail or in person without first sending written notification by U.S. mail. So if someone contacts you from out of the blue claiming to be from the IRS, don’t believe them if they haven’t first mailed you notification.
Further, the IRS says they do not ask people to make immediate payments without an opportunity to appeal. And remember that the IRS will send you a written bill before demanding payment. So, if someone calls demanding credit card information or something similar so you can make immediate payment, it is probably a scam.
Read the IRS.gov article: How to know it’s really the IRS calling or knocking on your door
- Get your paperwork together for an IRS audit
Assuming you verify that a contact comes from a legitimate IRS representative, what should you do next? Chiefly, don’t panic. While people tend to associate IRS audits with an investigation of wrongdoing, most are fairly routine.
Calmly find out what information the IRS wants and then get your paperwork together. Determine which years the IRS is interested in and gather your returns and records for those years. You’ll need to be able to verify your income and document any deductions and credits you took during the years in question. Review the information to make sure there aren’t any mistakes or other issues you need to address.
- Notify your tax preparer
If you have a paid tax preparer, notify them about the IRS inquiry immediately and find out what support they can give you through the process.
A tax preparer who signed off on your return should be willing to assist you in the audit process, though they may charge extra for certain services. This help can be valuable because they are familiar with audits, relevant tax law, and the methodology used in preparing your return.
- Build a savings account for tax payments
If there is a possibility you might end up owing the IRS, start setting aside some money even if you are still in the process of discussing the case.
The reason is that, if the decision goes against you, the sooner you can pay any money owed, the more likely you’ll be able to avoid additional fines and interest payments. Having money accessible in a savings account for tax payments will allow you to close the matter as quickly as possible.
- You can appeal the outcome of an IRS audit
If you disagree with the conclusions the IRS comes to, you can appeal the outcome. The IRS has an Office of Appeals designed to provide an impartial review of IRS actions. According to the IRS, this Office of Appeals is able to settle most issues that come before it. However, if you are not satisfied with the outcome after you go before the Office of Appeals, you still have the option of going to court.
- Negotiate payment terms
If things go against you and you owe the IRS an amount you can’t readily pay, work with the IRS to negotiate payment terms.
Don’t expect the IRS to do you any favors in that situation, but they do have an interest in finding the best way they can ultimately get the money they’re owed. Try to work out payment terms that are reasonable to your situation; but keep in mind that the longer you stretch out the payments, the more it is likely to cost you.
The bottom line is, don’t let a contact from the IRS strike fear into your heart. Deal with it in a businesslike manner, starting with verifying that the contact is legitimate. If it is a legitimate contact, work through the situation step by step to document how you handled your returns. Then, if it turns out you owe the IRS money, find the most expedient way to pay off that debt.
More resources on taxes
Need tax tips for 2018? Read: 7 tax changes to know about now
Official IRS.gov site: Tax scams / consumer alerts