Being notified that you’re going to be audited is never good news. But it doesn’t have to keep you up at night. Although it can be a stressful and challenging process for you or your business, there are things you can do to prepare mentally, emotionally and in a practical way. Just go through the steps below to get through an audit successfully.
Realize That It’s Not Personal
Keep reminding yourself that an audit is a very routine process. It’s not a personal attack on you. In fact, odds are that some giant computer spit out your name along with thousands of others and selected you for a random audit. The purpose of an audit is not to catch you doing something wrong, but rather to verify that your records and financial processes are accurate and compliant.
Determine The Scope of The Audit
Audits are limited in nature. Review your notification letter. Somewhere at the top, it will indicate what year or years that you’re being audited for. This alone may make you feel better, as you’ll only need to gather documents for the year that’s being reviewed. Your auditor won’t be reviewing anything other than what falls within that scope of time.
Contact Your CPA
Next, forward a copy of the audit notification letter to your CPA. After a day or two, give your CPA a call to make sure they received it and to formulate a plan to prepare for the audit. Depending upon your CPA and your arrangements, the CPA may want to be there in person for the audit, send a representative or allow you to handle it yourself.
Review the Details of the Audit Process
Sometimes audits take place in person. Other times, you’ll just be asked to submit documents, which will be reviewed internally by the IRS. In many cases, simply mailing in requested documents will take care of the audit. In other cases, either more information will be requested, or an in-person audit will be scheduled.
Assign a Point Person
Someone needs to be assigned to be the primary contact for the auditor, if the audit will be taking place in person. This could be you, your CPA or a trusted admin official in your business. Whoever it is, they should be knowledgeable about the subject matter and able to answer the auditor's questions fully and in a reasonable timeframe. If it’s a business audit, the point person can coordinate with other staff members to provide any necessary documents and answer questions, ensuring that the audit goes smoothly.
Be Honest
It’s important to be transparent and straightforward in all communications with your auditor. Answer their questions truthfully to the best of your ability. Provide accurate information, and don't withhold any relevant information. Avoid being coy, clever or humorous with your answers. If you don't know the answer to a question, it's okay to say so. Don’t feel pressured to make up answers or provide information that you're not absolutely certain about. If the auditor doesn’t get what they feel is a satisfactory answer, they’ll make a note to follow up on it later, after you’ve had a chance to retrieve any necessary supporting documentation.
Take Your Time
Auditors don’t expect you to have every single receipt and piece of paper or digital file at your fingertips. They understand that it can take time to remember where you filed something, and that records are rarely perfect. When asked to show something that you can’t quite recall filing, take your time. Stay calm and think about where you might have put something like that. For example, during the course of any year, you might have one-off pieces of paper that don’t fall into ordinary filing categories. It can be hard to find things like this when you feel like you’re being watched by an IRS official. It’s fine to tell them it’s going to take a little bit more time to find that particular document. Again, they’ll just make a note to follow up on it later.
Don’t be Argumentative
If your auditor finds a discrepancy, don’t agree or disagree. Just indicate that you understand they found a discrepancy. The auditor may give you a chance to explain your actions, in which case you should do so in an objective tone of voice that’s not defensive or argumentative. Use phrases such as, “According to my understanding…,” and “I believed this to be the correct way to…” etc. You want to maintain a business-like rapport with the auditor and be neither confrontational nor argumentative.
Remember the Auditor’s Role
Remember that the auditor is there to help you comply with the tax code. They aren’t looking to punish you. They’re just doing a job. At the end of the day, they’re going home to their family just like you do. In fact, the auditor that you encounter likely doesn’t have final say in the audit. Chances are that their work has to be reviewed by a higher-up to be sure it’s accurate. When you think of it this way, it might make you feel better about being on even ground with the auditor.
Rely on Your CPA
Whether or not your CPA is there in person to get you through the audit, you can rely on them to help you as the audit progresses. You can contact them intermittently to let them know how the audit is going, or to ask questions. Your CPA has been through countless audits and they can tell you their opinion about your audit.
Ultimately, you may have fewer chances of receiving an audit notification in the first place if you use the services of a CPA. But if you do get an audit notification, hopefully these tips will help you to get through it more calmly and with less worry on your part. Remember, if worse comes to worst, you may owe more money to the IRS. And if that happens, your CPA can help you to manage that, too.