Consider The Following Items…
As in all dealings with the IRS, collections or audit, never adopt a guilty posture, or any posture for that matter. Treat the audit as a routine examination of documents and explain the business purpose. Remember that the auditor has no collection power and can’t do anything against you, other than making up an examination report against you. So don’t be intimidated, but be nice and cooperative. Never admit to any wrongdoing, even if you have a good excuse. You do not want the auditor to document that you willfully left out income or put down expenses that you did not incur. This is the beginning stage of fraud and criminal cases against taxpayers. It is really o.k. to say that you forgot, or don’t remember, or that you don’t have a reason for doing something. Maintain your innocence! Be persistent in your response no matter how much the auditor may push you for reasons.Always pull the 3rd party payer information or get it from the auditor ahead of time. If there are incorrect W-2, 1099, or K-1 information filed against you it’s best to resolve this prior to the audit.
When gathering your proof, if you don’t have a mileage log for your business miles, create one. Don’t try to make it look like you did it during the year being audited. You are allowed to create it now for the year under audit. If you are missing receipts or need to swear to a condition or circumstance that makes an expense deductible, prepare an affidavit swearing that you actually spent the money and what the reason was. Use an affidavit to swear what your income is, in cases where the auditor wants to add income, but he/she doesn’t have 3rd party payer (W-2 or 1099 etc.) to back it up. If the auditor has 3rd party payer information to back it up, but the information is not yours or higher than you actually received, you need to prove that it is not your income. Go to the issuer to resolve it by having them issue a correct one, or do an analysis of your income and expenses to show you didn’t receive that money if you can. Now you see why it is important to get the 3rd party payer information first. Remember, when doing an affidavit to give a lot of detail, simple logical explanations that will lead anyone clearly to your conclusions. Leave no room for doubt.
There are more things to consider than most people realize. You may even help your auditor to adopt a position against you that may be hard for a representative to change.
