How to Prove to the IRS You are Right in an Audit

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IRS Audit

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It can be very frightening to find out you are being audited by the IRS. Immediately, you begin fearing the worst because the end result of the audit could be you owing the IRS more income tax.

While an audit is something that can induce panic, it is not anything to be overly fearful over. Yes, you will have to gather together all of the paperwork that justifies deductions, credits, etc. As long as you have proof, you should not worry. Even when you don’t, it may mean that you will owe the IRS a little more money with penalties and interest. The IRS does not typically engage in criminal proceedings if the issue is minor, does not involve a significant amount of money, or is taken care of by the taxpayer in a satisfactory manner.

What Happens in an Audit?

You know you are being audited when you receive a notice from the IRS through the mail. So the first step you should take is to look over your tax return in detail. You need to have an independent perspective because you want to identify what the IRS may be wishing to review the most. You should not find anything new on the return, as that should have been taken care of before it was transmitted to the IRS. The purpose of the audit is to ensure that there were no errors in your return, which could cause you problems later. In some cases, a person may have to owe more tax. In other cases the audit is simply a matter of the tax return being flagged with no significant issues being present. It is very rare that the IRS has to owe a taxpayer after an audit.

If you fear the emotional aspect of the audit is going to cause you issues, you can have a CPA meet with the IRS so that those emotional issues can be taken care of for you. Many times, taxpayers try to handle their audits on their own, but can cause themselves unnecessary hardships by not knowing how to sense issues and adequately address them.

The success of the audit is going to depend upon how focused you can stay, ensuring the truth is told, and simply staying the course. Because unintentional mistakes are made, you should not be too frightened. Basically, you are going to have to provide the IRS with the documentation that they request so that they can compare that documentation with the information on your tax return.

Types Of Audits

There are different types of audits. The first is the mail audit. This is when the IRS sends a letter that requests additional information about a particular deduction or credit taken. While not an actual audit, you could receive an “Automatic Adjustment Notice” that states that the tax amount you owe to the IRS is different than it was initially.

The second type is the interview audit. This type is very rare because it involves the taxpayer having to appear at the IRS office with backup documentation and receipts to support the information on their tax return.

The third type is the field audit. The field audit is reserved for very few taxpayers. This is the typical type of audit that is done of home businesses or small businesses.

The fourth and last type of audit is the correspondence audit. This is the type that requires you to provide information that supports specific claims on your tax documents. This is the type of audit that is used to check for unpaid taxes.

Proving You’re Right

When audited, it is possible to prove to the IRS that you are right. Keeping your cool and making sure you have every possible piece of information you can dig up can prove that there was no reason to audit you in the first place because there is nothing to find.

So what you want to do is print all of your receipts. Any expenses for advertising, unreimbursed work-related materials, office supplies, and anything else you wrote off on your tax return need to be accounted for. Print off the transactions you did, print invoices, and print the receipts from websites that you did business with. In other words, print every receipt and invoice from the tax year in question.

Next you want to print your bank statements. Simply log into the bank’s website and print off the statement for every month of the tax year in question. Do not omit any pages. Bring the ledger, summary, and balance pages. In other words, bring it all with you.

If you us a bookkeeping software, print off a report that shows your income and all of the expenses for the year. While the auditor may dismiss this reported and consider it invalid, it gives the “I’m prepared” image and proves to them that you are not hiding anything.

You should also highlight everything. The auditor may be quite surprised if you highlight the totals and dates on every invoice, as well as the line items on the bank statements that make up the expenses and deductions being questioned. Not only does this make the job of the auditor easier, but, again, it is obvious that you are not hiding anything.

Lastly, you will be surprised that you do not have to have a receipt for everything in an audit. There may be some cases in which an invoice or receipt is lost. You can prove that expense in another way. For instance, you may be able to dig up an email that confirmed a purchase. It may not have been an actual receipt, but that email is enough. Another example is this: You may have been quoted a price for something. You may have bought that item or service, losing the receipt later. If you can show on your bank statement that there is a purchase from that company for that amount, then you have your proof. If there is no way to obtain the missing information, you can make your case and have the deductions approved.

Bottom Line

So all in all, you don’t want to go into an audit unprepared. In fact, be too prepared and that will make a great difference for you during the process. Think of it this way: A computer flagged you because something on your tax return triggered it. You weren’t targeted and the auditor is simply doing their job, so do everything that you can to make their job as easy as possible. This will also make proving you’re right that much easier. If something happens that you are not right, you will simply pay the missing taxes and a penalty. Fortunately, the mistakes on taxes or the additional tax associated with missing receipts or invoices that can’t be proven in other ways tend to be quite small.

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About Author

Ginger has over a decade of experience in the area of personal finance. She has provided informative content and advice on a number of finance-related topics to individuals in the U.S. and Europe. She is able to do this because of her personal and professional experience, which includes work in the financial sector and 10 years in tax preparation. She resides in Ohio with her husband and three children.


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