Be organized and able to support each figure on your return. Since you will be required to substantiate each figure on a return, it is imperative that you are organized to the point that you are efficiently able to locate the proper receipts, invoices, sales records, cancelled checks, credit card statements, bank statements and other documents as necessary to prove the positions you took on the return. Audits are about credibility. Being able to support the deductions claimed on your return with proper substantiation in an organized and efficient manor will earn you credibility and lessen the likelihood that an expense you claimed will be disallowed or previously unreported income will be assessed.

You are likely to be in for a rude awakening if you attempt to dump your records into the proverbial shoe box, place it on the auditor’s desk, and request that he figure it out! You must remember that if you cannot substantiate an expense to an auditor’s reasonable satisfaction he or she will just disallow the deduction which will cause your taxable income to go up by that same amount. If you cannot prove to an auditor’s satisfaction that a deposit to an account was non-taxable, your income will also go up.

If you’re going through your records and find that some of them are missing, call for duplicates immediately (especially duplicate bank statements and cancelled checks). You must not merely go to the audit and claim that the records are missing or lost.

Where you can, bring originals of all business documents with you to the audit but do not leave them in the possession of the agent. Request that the agent make copies of any documents that they are interested in and then give the originals back to you.

It is important to establish credibility with the auditor from the first meeting. Be on time. Dress professionally, similar to how you would appear in a court of law. Be cognizant of your body language and make good eye contact. Try and appear relaxed but engaged and project the image that “you have nothing to hide”. Treat the auditor with respect and be cordial at all times even where you become angered or frustrated with the auditor. If you disagree with the auditor, disagree agreeably and respectfully. Do not engage in a debate or, worse yet, argue with the auditor. Do not babble and make sure to take sufficient time to enable you to think before you speak. Practice word economy and do not discuss sections of your tax return that are not currently in question. Always remember that providing more details than requested could widen the scope of the current investigation.

IRS TAX AUDIT CHECKLIST:

  • Gather all relevant and necessary business records
  • Be organized
  • Be courteous and professional
  • Establish credibility
  • Be prepared to substantiate
  • Limit the scope of the audit
  • Avoid inadvertent disclosures
  • Know your rights