1What Does the IRS Need to Know?

When the IRS intends to audit a person due to discrepancies in tax returns, it is because the numerical score of your tax returns falls below the average of each deduction you have made. Thus, for each deduction that falls below average the numerical score increases and one is liable to explain why it is so. The numerical score tends to be focused on areas such as the following:

- Low profit margins

- High costs of travel and entertainment allowances

- Deductions on your tax returns that exceed the IRS targets

- Complex business expenses

- There are money tips involved in your business

- Large contributions to charities

These are just some of the areas IRS may be interested in. Others may be found at www.wwwebtax.com.

2What Needs to be Prepared for an IRS Audit?

There are different types of audits conducted by the IRS described below:

A correspondence audit is where you receive a letter from the IRS requesting you to prepare and supply them with copies of returned receipts or canceled checks in order for them to clarify several deductions from your returns. This method targets small and simple tax returns.

An office audit is where a mail is sent to you identifying certain item discrepancies that require you or your representative to prepare and take the required documents to the IRS offices nearby for verification. This audit targets sole proprietorship businesses with sales below $500,000.

A field audit is whereby the IRS agents call the owner(s) of a business to notify them of certain discrepancies in their returns which require the agents to conduct the audit at their place of work. This method targets partnerships and incorporations.

The Taxpayer Compliance Measurement Program audit is conducted in order to upgrade the numerical score program. It requires all returns to be substantiated via documentation and therefore all checks, invoices, bank statements and contracts for all deductions need to be prepared and submitted.

3What Needs to be Prepared for IRS Audit in a Field Audit?

In the telephone conversation the agent will ask one to prepare the following:

• The heads of the organization for an interview
• A date(s) for the auditing to take place
• The location of the records for easy access
• A list of all the records to be provided to the auditor

This type of audit often needs the help of a representative who will help to buffer you from questions and probing that may lead you to vulnerable areas of questionable deductions. As there are no perfect tax returns, the representative’s job will be to prepare and conduct the audit in a manner that limits the agent’s scope.

4How to Make the Auditing Process as Smooth as Possible

The auditing process may be quite strenuous as it involves answering many questions, carrying and presenting loads of documentation and so forth. Here are some few tips one may use in order to have a smooth auditing time:

A. Early Response

Once you have received communication from the IRS you need to get in touch with their offices in order to understand what exactly they are looking for. This conversation will also enable one to provide the required documents and nothing extra. It will also provide one with ample time to organize the documents that are needed and prevent supplying documents that may lead to further auditing. An early response will help in the occasion that some documents are missing and thus give ample time to find them or time to reconstruct the missing information from other sources.

B. Deciding Whether or Not to Use a Representative

Attending the audit personally or in the company of a representative increases the chance that the auditor will ask questions that you would have liked to avoid. Any of the questions asked by the auditor have an aim of indicting you of tax evasion. As such, it is more advisable to use a representative.

Other tips to consider:

• Give the right amount of information for questions asked; not too little or too much.
• Provide only the documents needed to support the deduction in question.
• Strive to answer the questions honestly.
• One should carry duplicates, not the original records.
• Stay out of casual conversations with the auditor.
• One should be calm and avoid arguments.
• One should consult with a representative before signing any documents and also try to obtain copies of the signed documents.