Wednesday, April 18, 2001 |
Know your rights
Everyone dreads the thought of getting that letter from the Internal Revenue Service (IRS). You know the one that says the IRS would like to audit your tax return. Yes, fear of being audited by the IRS can make even the most stalwart taxpayer panic. But, according to the Georgia Society of CPAs, an audit should be viewed as nothing more than an impartial verification that you have reported all your income and are entitled to the exemptions, deductions, and tax credits claimed. Should that dreaded notification appear in your mailbox, here are some helpful strategies for dealing with the IRS. Strategy #1 - Don't panic. Prepare! Carefully read the letter from the IRS to verify that the information is correct. Be sure you understand what you are being asked to do. Respond promptly but don't hesitate to ask for a postponement if you need more time to assemble your records. Preparation is the key to getting through the audit as painlessly as possible. Be sure to review each entry on your return, organize your records, and identify potential problem areas. Strategy #2 - Think twice before attending your own audit. You can choose to handle the audit by yourself, have a representative, such as your CPA, go with you, or have him or her go in your place. Most experts recommend that you do not attend your audit. Having representation is often the best way to prevent the audit from escalating beyond the original area(s) that attracted the IRS's attention. For example, if the auditor decides to question an area on your tax return, a representative can say that he/she doesn't have the answer, thereby giving you more time to research the area and secure the necessary documentation. If you decide to attend the audit and address the questions yourself, it is important that you provide exactly the information needed to answer a legitimate request by an auditor and no more. Answer questions honestly but briefly, and hand over only the documents needed to support the deduction being questioned. Providing the minimum amount of information helps to contain the audit. CPAs recommend that you don't become argumentative. What you don't know about tax aw can hurt you. It generally works to your benefit to let the auditor lead the discussion. Strategy #3 - Know your rights. The IRS is required to inform you about your rights as a taxpayer. For example, you have the right to prompt, courteous and impartial treatment. You have the right to ask for a reasonable amount of time to produce requested documentation, stop the audit to consult a tax advisor, and request that the site of the audit be changed. For complete details, read IRS Publication 1, Your Rights as a Taxpayer. You can order this publication by calling the IRS at 1-800-829-3676. Strategy #4 - Know the appeals procedure. In the end, you may agree or disagree with the auditor's findings. By agreeing, you will be asked to sign a form to that effect and pay any outstanding taxes, interest, and penalties. If you disagree, you can speak with the agent's group manager to see if the problem can be resolved at that level. If that is not successful, there are numerous avenues of appeal you can pursue, such as taking the case to Tax Court. It's wise to consult with a CPA who can recommend the best approach for your particular situation. Strategy #5 - Avoid getting audited. Perhaps, the best strategy is to avoid being audited in the first place. Some of the "red flags" that may increase your chances of an audit include any evidence of unreported income, personal expenses disguised as business deductions, large deductions that are out of line with reported income, and sideline businesses that never show a profit. If your return includes a large or unusual deduction or credit you think the IRS may question, you may want to attach an explanation to your return. Most importantly, CPAs recommend that you maintain accurate and comprehensive records to support your deductions. For this reason it's important to put record keeping at the top of your to-do list. The GSCPA is the premier professional organization for CPAs in the state of Georgia. With over 10,000 members throughout the state, the purpose of the GSCPA is to promote the study of accountancy and applicable laws, provide continuing professional education, maintain high ethical and work standards, and provide information about accounting issues to the membership and the public. For more information, access our web site at www.gscpa.org. |