Perhaps you made a mistake on your taxes last year, triggering an in-depth review. Maybe you were simply randomly selected and what information the Internal Revenue Service (IRS) found made them suspect fraud or other tax-related misconduct.
Once you receive notice that the IRS has begun investigating your taxes or wants to audit you, you may panic. Some people have the opposite response and try to ignore the looming threat of a tax controversy. Audits have a reputation for being grueling experiences, and the penalties and fees assessed can sometimes dwarf the amount of allegedly unpaid taxes. Some people even go to jail due to claims of tax fraud or tax evasion.
Neither stressing yourself about the future nor ignoring the possible consequences will resolve your tax issues. What steps should you take to protect yourself during an IRS investigation?
Get professional help
Any tax investigation could lead to criminal charges and major financial penalties. There is a lot of detail and nuance to the tax code. It also changes so frequently that even accounting professionals sometimes struggle to keep up with the current rules. Even those who want to pay their taxes could make a mistake.
You have the right to the assistance of a lawyer during an audit and any interaction with the IRS. Making use of that right will protect you from making mistakes or getting bullied or tricked by those hoping to force you to pay more in taxes.
Get all of your records together
Typically, an audit can only go back over your last three years of tax returns. That means that you will want to collect all of your financial records and receipts for the last three years.
If you have used a financial professional to handle your accounts or file your taxes, information from them could help you respond to IRS allegations of tax underpayment. Providing all of that information to your attorney will ensure that someone who understands the system is also familiar with your current financial records.
Adequate preparation will make it easier for you to respond to a tax controversy or pending audit. With the right support, you will be in a good position to avoid criminal charges or negotiate a solution that doesn’t have dire financial consequences.