Surviving an audit

May 16, 2010

You thought you were through with the IRS. Then that letter showed up.

Uh-oh! Audit time.

Yep, that's always in the back of every taxpayer's mind. Even when we have simple taxes. Even when we get external assurance, for example from our tax software in the form of the graphic shown below.

We really wish that bar was totally to the left. Since it isn't, we can't quite shake that tiny nagging voice that warns the tax examiner might have a question or two about our 1040.

The good news is that for most individual filers, the risk of audit remains relatively low.

Still, statistics are of little comfort if your return is among the few fingered for a closer look.

But if worse comes to worst, don't panic. There are some steps you can take to help you, and your bank account, survive the experience.

Get professional help: If you don't have a tax pro, hire one to help you through the audit. Consider a tax attorney, CPA or Enrolled Agent. These professionals are authorized to argue your case to the IRS.

Document, document, document: Give all you tax records and documentation to your tax professional. This audit prep step also presumes that you have a good recordkeeping system in place.

Such substantiation is critical since when it comes to official tax inquiries, the burden of proof is on you. You are tax guilty until you unequivocally convince the auditor otherwise.

Prepare yourself: Although your tax pro will be taking the lead, do your homework. Find out what the IRS examiner is likely to look at by checking out the agency's audit technique guides.

Technically, these publications are for business audits, but they can offer insight on how comprehensive any audit might be.

Have the right attitude: Finally, remember that the IRS auditor is not your friend. He or she has a job to do, specifically to see whether you owe more taxes.

On the other hand, don't go into the audit with an antagonistic attitude. Be polite, but be professional. Answer all the questions, but don't offer more than is asked.

And definitely let your tax counsel take the lead

My story How to prepare for an audit elaborates on these, and more, tips.

Additional audit prep info is available from the Wall Street Journal's How to Fight the IRS, Lawyers.com's Surviving An IRS Tax Audit, and the Annapolis Capital's Keep your cool when the IRS comes calling.