How to handle an audit

Story originally appeared on Market Watch.

Many taxpayers are fretting over the end of the tax-filing season. But the event that some people fear the most—the audit—can happen at any time of year.

The Internal Revenue Service audited 1% of individual tax returns filed in 2012, according to data released this week. And of the 1.5 million individual returns examined, about 75% were conducted by mail through what is called a correspondence audit, which the IRS typically uses to request more information, tax pros say.

Sometimes, the problem is that the IRS’s numbers don’t match the ones you submitted (the IRS has matching software to help it compare the income on a tax return with the 1099 and W-2 information it receives, experts say). Other times, the IRS may write to ask for documentation, such as copies of receipts, to support the credits and deductions you’re claiming. But getting a notice from the IRS doesn’t necessarily mean the agency is going to require you to pay more taxes, says Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants. Indeed, 54,000 audits actually resulted in additional refunds last year, the IRS reports.

While there is no way to completely avoid an audit, there are a few steps taxpayers hit with one can take to help the process go smoothly. For starters, tax pros say, you should respond to the notice in a timely fashion by sending  in exactly what the IRS is requesting—no more, no less. “You don’t need to give them everything under the sun, but you need to give them enough information,” says Paul Gevertzman, a tax partner in accounting firm Anchin, Block & Anchin in New York City. You don’t want to slow down the process by making an IRS agent wade through additional information, tax pros say.

Some taxpayers may want to file Form 2848 to give their tax preparers or accountants power of attorney, meaning they can speak with the IRS on their behalf, says Brent Lipschultz, a partner in the Personal Wealth Advisory Practice Group of accounting firm EisnerAmper. Chances are, your accountant already has the information the IRS is requesting, and he or she can help you understand any issues the IRS may have spotted with your return, says Labant.

That’s not to say, however, that there definitely will be an issue. Sometimes, for instance, when the IRS’s numbers don’t match up with yours, the error is on their end, says Gevertzman: “Don’t assume the IRS is correct.” That’s why it helps to keep documents supporting your income, credits and deductions for several years, he says. Often the discrepancy can be settled if you send them a copy of your document.

If the IRS requests that you meet face-to-face with an agent, try to have that meeting at your accountant’s office, or on other neutral ground, says Gevertzman, instead of at your home or workplace. That will give you more control over what information is introduced to the IRS, he says, since for instance, the agent won’t be able to chat up your coworkers. Taxpayers don’t have to be present at the meeting if their adviser or accountant, who is speaking on their behalf, has power of attorney. And if you aren’t sure of an answer, “It’s OK to say, ‘I’ll get back to you,” he says. “You don’t want to feel pressured to answer quickly.”

Many audits will get resolved once a taxpayer submits the information being requested by the IRS and pays any additional taxes he or she owes. And if you don’t agree with the examiner’s decision, you can appeal. But in some cases (say, if a person is facing tax-evasion charges or if the tax bill being disputed is substantial), you may want to get legal help, tax pros say. Information shared between you and your tax preparer is not confidential for legal purposes, even if he or she is an attorney, says Gevertzman, so you need to hire a separate tax attorney to represent you in court if the case escalates.