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How to survive an income tax audit

6:24 PM, Apr 12, 2013   |    comments
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JACKSONVILLE, Fla. -- This year the Internal Revenue Service will process more than 140 million claims. The odds of you being audited are pretty slim.

But what if you should here or read those dreaded words, "this is an audit?" The experts say don't panic.

About three quarters of audits today are handled through the mail. No one is physically chasing you.

IRS audits are determined in one of three ways:

-It was a random selection, based solely on a statistical formula.

-Document matching. When your records, W2 or 1099 do not match the information reported.

-Related examinations. You show transactions with another taxpayer, maybe a business partner or an investor who is already being audited. 

With an audit, the IRS is just looking for an explanation and that's often quickly resolved. But if it is more complicated, you may be called for an in-person audit.

If that happens, prepare yourself. Be sure to have all of your records on hand. The IRS will let you know in advance the specific documents you will need. 

The law requires that you retain records used to prepare your return for at least three years.

If you're not feeling confident, you can take a representative to the audit, like your accountant or tax preparer.

Audits generally end in one of three ways:

-No change

-You both agree on a change

-You both disagree on the findings

This is important because if you disagree, you will need to meet with your auditor's manager to take things to the next step, or you can by pass that procedure and file an appeal.

Whatever you do, never ignore a letter from the IRS. If you delay, the IRS will most likely impose penalties and interest, and the longer you procrastinate the higher they will be. 

The IRS has provided a video series called "Your guide to an IRS audit" which will take you -- step-by-step -- through the audit process.

For more information, visit

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