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What should I do if the federal government audits me?

Being served with an audit may be overwhelming, but taking the right steps can ease the process.

Say the word “audit” around any taxpayer in Georgia, and you are sure to see someone’s stress level rise. However, as The Motley Fool points out, only 1 percent of all tax returns are audited by the Internal Revenue Service. Therefore, the odds of it happening are slim.

If it does happen, it should be taken seriously, but also in stride. Here are several steps to take upon receiving the notice that you are going to be audited:

Make sure it is real

There are plenty of people out there who try to take advantage of taxpayers and gain access to their financial information. The IRS states that if it initiates an audit, the subject of the audit receives a notice in the mail – not a phone call. Someone asking for Social Security numbers and tax information over the phone on the premise of an audit is likely a scammer.

Understand the reason

In some cases, the IRS randomly picks taxpayers to audit. In others, there is a specific reason for the audit, and the organization will let the consumer know what that is. It may be that there are inconsistencies on the tax return or that the person’s tax return is somehow tied to someone else who is under audit.

The audit could also happen due to a red flag. For example, if the withholdings someone claims are above average, it may trigger an audit. Knowing what prompted the audit may help the person better prepare for it.

Find representation

While it is possible to go through an audit alone, most people are best served by having a tax attorney on their side. This is someone who knows tax law and what to do when an audit takes place.

Gather the information

The IRS alerts the taxpayer to the information he or she will need to provide for the audit. Some common items include the following:

  • Bills and receipts
  • Loan agreement information
  • Legal papers regarding tax preparation, divorce settlements or property acquisition
  • Cancelled checks
  • Certain medical expense records
  • Employment information

It cannot be stressed enough that when sending this information to the IRS, consumers should send copies, not the original files.

Respond appropriately

The IRS alerts consumers as to when their response is expected. However, some people may need more time to locate and send the requested documents. Therefore, the IRS notes that it typically is able to grant people a 30-day extension upon request.

Review the findings

The audit may reveal that nothing needs to be changed. Or, there may need to be changes that could result in the taxpayer owing money. These findings should be thoroughly reviewed. The taxpayer may agree to the changes or disagree. If there is a disagreement, there are legal remedies such as filing an appeal.

Anyone who has concerns about this issue should speak with a tax attorney in Georgia.