What to do if you are audited.
The odds are a mere one in 100 that your tax return will be audited. Actually, the odds are better than that if you don't fall into red-flag categories such as being self-employed or taking an unusually high percentage of deductions. Nevertheless, you receive a notice in the mail from the IRS that it wants to verify the accuracy of part or all of your tax return. Your stomach does a flip-flop. Now what? According to the Institute of Certified Financial Planners, Denver, Colo.:
* Don't panic. First, you may have received a simple correspondence audit in which the IRS asks about a particular deduction or calculation on your return. The issue probably can be resolved quickly and easily by mailing supporting documentation. Even if the letter announces an office audit, where you have to meet in person with an auditor, stay calm.
* Check the notice carefully. It may contain the wrong name or the wrong information. Computers--which flag the vast majority of returns for auditing--may be looking in one spot for information when you put it somewhere else. The statute of limitations may have expired; generally, the IRS must start the audit process within three years of the due date of the return or when you actually filed the return. Also, the IRS usually will cancel an audit if this is the second time in the last two years it has questioned the same item for the same reason. Don't mail off an overdue payment without carefully making sure you really owe money.
* Don't rush. The IRS notice may name a time and place for an office audit. You can change both to suit your convenience if the request is reasonable. Allow yourself time to prepare for the meeting.
* Be organized. Auditors will hone in on sloppy record-keeping.
* Bring just the records you need to answer the auditor's questions. If the auditor wants to know...
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