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Steps to take when preparing for an IRS audit

Georgia taxpayers may wish to think twice before attending an IRS audit alone. A problem with audits is that the taxpayer may be asked to answer questions that they would rather choose to ignore. And every word spoken at an audit may ultimately be used to determine whether back taxes are owed or underreporting of income has occurred.

Tax audits can be triggered by factors such as amount or type of income, deductions taken, changes to income or changes in the manner that the income was earned, etc. Not surprisingly, a higher income increased the chances that an audit would occur. The IRS examined nine percent of tax returns where adjusted gross income was between $1 million and $5 million. The statute of limitations varies depending upon the kind of error that purportedly occurred. For substantial errors the IRS could look at returns for the past six years.

If an audit occurs it's important to be organized and bring along records concerning tax returns being audited. However, it's also important not to provide information for returns or deductions that are not being questioned. Also make certain that you keep all of the original records.

It's good to answer questions accurately and succinctly. Don't be overly talkative and remain polite. Finally, make certain that you receive copies of any documents signed.

There are different kinds of tax audits. A taxpayer could face a paper audit or an in-person audit. In any case, since most individuals have little to no past dealings with the IRS in an audit situation, it may be useful to speak to an experienced tax attorney to understand all of one's legal options. Understanding the process can help to reduce the anxiety by providing a better idea of what to expect.

Source: CBS Moneywatch, "What to do when IRS auditors want to talk," Ray Martin, May 30, 2014

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