Are You Playing Audit Truth or Dare?

There is really no way to avoid an audit 100% of the time. You see, audits occur for a few reasons, two of which have nothing to do at all with the taxpayer being audited. Every year the IRS chooses a group to pick on. Back in about 2001 or 2002, it was single fathers claiming the Head of Household status. I had quite a few clients come to me with beads of sweat on their foreheads and IRS letters in their hands. This year, like last, seems to be the small business owner deductions. Another reason for an audit is miscommunication or better yet, no communication between IRS departments. This causes so many problems due to the variable experience level of the agents. Refer to my blog, How To Talk With The IRS for a better understanding. Yet another reason is because something on the taxpayer’s return has alerted the IRS to a potential issue. This last one can be diminished simply by being smart when preparing a return. Ask yourself if you think the IRS would accept your information and then think about how you would back that information up if it ever comes into question.

Most audits these days are “paper audits”, that is audits that are performed via postal mail. In all cases, the IRS simply wants the taxpayer to back up the information on their tax return. This is why it is vitally important that every tax return prepared, whether by a preparer or by the taxpayer herself, consists of only truthful information and watertight calculations. Regardless of who prepares the return, the taxpayer is ultimately responsible for the information on that return. So, it behooves them to know what is being claimed and to have and keep all the backup information (receipts etc.) for the life of the return. Even though the IRS doesn’t usually go back more than 7-10 years to perform an audit, they are allowed to go back as far as they want, especially if they can prove tax fraud. Therefore, I recommend never throwing out any tax return or backup information. So, keep your return watertight and you will definitely sleep better at night!