- The Washington Times - Tuesday, March 15, 2005

Q: Help! I’m being audited by the IRS. What should I do?

A: The first step is to educate yourself about the process and learn what rights you have. Read IRS Publication 556, which can be found on the IRS Web site, www.irs.gov. It spells out your basic rights and explains how an examination of returns, as the IRS calls an audit, works.

You’ll need to decide whether you want to handle the matter yourself or hire an attorney, accountant or enrolled agent, which is someone licensed to practice before the IRS.

If it seems the issue brought up by the IRS was a simple mistake on your part, and the agency’s proposed changes to your return won’t cost you too much, it might be best to simply agree to the changes and send Uncle Sam a check. The IRS says most taxpayers do agree to its findings and that many audits can be handled through the mail.

But if it’s a more complicated and potentially costly issue, and you are not an expert in the nuances of the tax code, it’s time to look for a good lawyer, accountant or enrolled agent. If you are lucky, they can knock down the amount of money you owe, or even get you a refund by finding deductions you didn’t know about.

Generally, enrolled agents are the least expensive and tax attorneys are the priciest — though fees vary.

If you can’t afford a tax professional, you do have some options. If your income is under certain thresholds — $22,150 a year for single filers and up to $52,950 for households with five persons — you may be eligible for a Low Income Taxpayer Clinic operated by a nonprofit group. The clinics are partially funded by the government, but completely independent from the IRS.

You also may be able to get a referral for a pro-bono professional from your state’s bar association or a local accountants society.

Typically, audits focus on a specific element of your return, rather than the whole return.

So it’s important to gather all old documents that support your case, whether that means asking your bank for canceled checks or asking your credit card company for old statements.

A tax professional can offer guidance about other documentation. For example, Jennifer MacMillian, an enrolled agent in Santa Barbara, Calif., said you can reconstruct car mileage logs by using a business calendar and an Internet mapping program like MapQuest.

Your representative can handle all your contact with the IRS, or you can accompany him or her to meetings with the IRS. However, many tax professionals believe the taxpayer being audited should not attend these sessions.

“I think you want to stay as far away as possible,” said Bernie Kent, a tax partner at the accounting firm PricewaterhouseCoopers. “Anything you say can be held against you.”

Except for rare exceptions, Miss MacMillian said she never lets clients go to the audit with her.

One last tip from PWC’s Kent: If your audit is concluded with an adjustment to your federal return, be sure to file an amended state return for that year.

“If you don’t file an amended [state] return, they are very likely to assess penalties,” he said.


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