NEW YORK (MainStreet) – By now you’ve sent in your tax returns (unless you filed for an extension), and you may have already received a refund check. If you’re lucky, that’s the only letter you’re going to get back from the Internal Revenue Service.
But some are not so lucky and wind up getting audited.
Seventy percent of audits are just a letter asking for more information about your tax returns, and you’re asked to mail back forms proving your income or deductions. In other cases you’ll get an invitation to meet with an agent to discuss your tax forms, a scenario that sends many taxpayers into a panic.
In either case, there’s usually little need for panic, but there are certain steps you should take. To find out the best (and worst) course of action in the event of an audit, we talked to a certified public accountant and a tax lawyer, both of whom have worked for the IRS. Here’s what they told us you should do if you get that dreaded letter.
Don’t ignore the letter. “The first thing to do is respond,” says Cindy Cattran, a CPA and the tax principal for the Ann Arbor, Mich., office of the accounting firm Rehmann. “Ignoring them is the worst possible thing you can do. It won’t go away.”
With that said, you do have a bit of leeway on how long you take to respond to their request. While you should write back as soon as possible, you can ask for more time to gather the paperwork and forms – within reason, anyway.
“If you don’t have [the requested paperwork], ask the agent for a two-week extension,” says Kelly Erb, a tax lawyer who blogs at TaxGirl.com. Still, she warns that there’s a limit to the agency’s willingness to grant an extension. “They’re not going to give you a two-week extension because you couldn’t print something out last night … Most of the things they’re asking for is stuff you can get pretty quickly.”
Decide whether you need representation. Most of the time the letter you get in the mail is just a simple request for information – the IRS just wants you to mail in your 1099 form, for instance, or they want to see receipts for the business meals you deducted. In that case, just sending in the requested paperwork is usually sufficient, and you don’t need to get your lawyer or accountant involved.
If you can’t find the information they’re looking for, though, you’ll probably want to call a professional to advise you on your next move. And if you’ve been called in to meet with an agent, you should almost certainly bring in outside help.
“I recommend to clients that they take me with them or let me represent them without them going,” says Cattran, a former IRS agent. She explains that you can grant power of attorney to either a lawyer or an accountant, and let him or her handle everything while you stay home.
And don’t think that bringing a lawyer will annoy the agent or make him or her think you’re guilty – it will do quite the opposite, actually.
“It’s been my experience that they prefer to deal with an attorney,” says Erb, who clerked with the IRS during law school. She notes that a professional will prepare the requested information in a way that’s easy for the agent to read, and will do so in a dispassionate and professional way. “I don’t stare at them and say, ‘that’s not fair,’” Erb says. “I don’t have emotional baggage.”