Just because you can back up every item on your return, don't think you can forget about an audit. Those relentless IRS computers may bounce your return for any number of reasons, including pure chance. If you face an audit, here are some tips on how to make the experience less traumatic and less costly.
The audit usually begins with a letter of notification from the IRS. What you have to do after that depends on the type of audit you must undergo and the records you need to assemble. Here are the three types of audits.
Correspondence Audit. This is the simplest type of inquiry. The IRS will want more information to justify one or two relatively simple items on your return. Send an explanation of your position by return mail, along with any records needed to support it.
Do not, though, send originals; send copies. Records can be mismailed, misfiled or mishandled by either the Post Office or the IRS and might not be available when you need them.
In case your records are too extensive or bulky to photocopy and mail conveniently, or if you feel it would be difficult to explain your position in writing, you can ask the IRS for an in-person appointment.
Be sure to comply with the deadline set in your audit notice or arrange for an extension. Otherwise, the IRS has no choice but to rule against you and send a bill for additional taxes.
Office Audit. The audit notice will list a specified time for a face-to-face meeting at the nearest IRS office. But you can phone or write the agent and reschedule the appointment for another time if that is more convenient.
Pick your time carefully. The IRS examiner might be more harried right before lunch or more distracted on Friday or the day before a holiday.
The audit letter will list a number of items -- business deductions for things like office supplies and travel, or personal write-offs for things like contributions, medical expenses and exemptions for dependents. There are also blank spaces to fill in other items not listed. Next to each item is a box. Those that are checked will tell which items are up for audit. Thus, you know in advance that this is what you are going to be asked about. If the items checked can be readily documented by checks and receipts, it might be possible to have the inquiry handled as a correspondence audit.
Before you appear for an office audit, organize your records and go over your explanation. If the IRS questions an item for which you have no substantiating records, at least you'll have some explanation ready.
It's also a good idea to do your own audit and see whether you can uncover some deductions or anything else in your favor that you overlooked when you filed. Then you might be able to reduce any added taxes that the IRS wants to impose. You are entitled to argue new points in your favor, as well as to defend your return as filed.
Field Audit. This type of audit is conducted at your home or place of business or at the office of your tax adviser. It can involve an extensive examination of your entire return and is usually reserved for someone with a more complex return showing business or professional income.
An audit can be fairly routine -- say, proof of expenses that the IRS concedes are deductible. Either you can come up with the required records or you can't; you may be able to handle the audit without professional help. But if a point of law is the issue, then it might be wise to have a tax expert on your side. You can ask for a delay in which to seek help.
A version of this post was originally published in 1991.
Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as: "a leading tax professional" (New York Times); "an accomplished writer on taxes" (Wall Street Journal); and "an authority on tax planning" (Financial Planning Magazine). This article is excerpted from "Julian Block's Tax Tips for Marriage and Divorce," available as a Kindle at Amazon and as a print copy at julianblocktaxexpert.com.