What to do when faced with a federal tax audit

This article looks at avoiding audit “red flags” and how to prepare for an audit when it does happen.

According to the Motley Fool, Florida is one of the top ten states for the number of overall federal tax audits. For most taxpayers, receiving notice from the IRS about an upcoming audit is not likely to be high on their list of pleasant experiences. The tax code, after all, is bewildering for most lay people and for many taxpayers facing an audit there is a concern that their tax return may have inadvertently run afoul of the law. While a federal tax audit is certainly a frightening experience, there are ways to prepare for one and to make the process go relatively smoothly.

Avoiding red flags

Not surprisingly, there are a few items that the IRS looks for when deciding who to audit. While the IRS does not publicize the process it uses to determine who will get audited and who will not, it is possible to discern that some "red flags" are more likely to garner the attention of the IRS. For example, home office, charitable and medical deductions that fall outside of the norm may cause suspicion. Claiming 100 percent business use of a vehicle and claiming business losses for several years in a row are also potential red flags. Of course, any of these deductions could be entirely legitimate and taxpayers should not shy away from claiming the deductions they are entitled to.

Dealing with auditors

As FOX Business reports, when the IRS decides to audit a taxpayer, the best thing that taxpayer can do is seek out the services of a professional immediately, such as a tax attorney. Having professional representation presents a number of advantages. For one, when negotiating with the IRS directly many taxpayers tend to think that the more information they provide, the better. Unfortunately, when it comes to talking to the IRS sharing too much information could raise additional red flags in the mind of the auditor, which in turn could lead to further problems for the taxpayer.

Furthermore, many people facing an audit often assume that they have done something wrong. Their approach is to take an overly friendly approach with the auditor, hoping that by being overly nice that the auditor will somehow "give them a break." While it is important to treat the IRS professionally and courteously, one should not assume that an audit means that there actually is something wrong with one's tax return. The auditor is certainly not looking to make friends with the person he or she is auditing. With the help of a tax attorney, it may even turn out that the IRS is the one that owes the taxpayer money and not the other way around.

Legal help

An auditor is working for the IRS, whereas a tax attorney is working for his or her client. Negotiating with the IRS is an intimidating experience, which is why anybody who is facing a federal audit should contact a tax attorney immediately. A tax attorney can deal with the IRS directly on the client's behalf and ensure that they have the representation they need to minimize the potential impact of an audit.