12 Most Practical Tips for Surviving an IRS Audit
Few things inspire fear, angst and all sorts of icky feelings than receiving a letter from your friends at the IRS. I obviously get why they exist and appreciate the need to pay my fair share of taxes, but outside of filing my taxes each year, I’m not looking to be their best friend.
So when I received that letter in January indicating I was the lucky recipient of an audit, I said more than ‘oh dear’. This was not one of those things on my bucket list of life experiences, but audits happen and you might have your chance too.
Here are my 12 tips for navigating and surviving your first audit.
1. Approach it with a calm sense of humor (or at least calm)
The first thing I did the morning after receiving THE LETTER, I called the contact listed and said, “I just received a nice letter from you guys and wanted to follow up.” Nice is certainly relative, but being calm reduces the tension. This person happened to be quite pleasant on the phone, chuckled, and explained the process to me. In particular, how we were selected and that they just wanted to take a deeper look. He also wasn’t at all surprised to hear from me, picked up on the third ring – they’re organized if I dare say so.
2. Don’t go to the audit yourself
You don’t know tax law like the accountant who prepared your taxes which puts you at an immense disadvantage. Give your accountant power of attorney to go on your behalf. After I scheduled our appointment, I called my accountant to let her know about this pending outing and she quickly told us that she should really go. Naturally I was only too happy to oblige.
3. Recognize who has the power in the negotiation
Skip the bravado. The IRS is powerful for a reason. No one likes to pay taxes so they need to have the power to collect from those that try to skip out. While you have the ability to cancel that root canal, you most certainly cannot get out of an audit. Getting to Yes is a great book for understanding negotiation techniques, especially when the other has the power in the negotiation. When you accept this, it changes your thinking and reduces stress.
4. Don’t clean out your email
If there’s ever an excuse NOT to clean out your email, an IRS audit is it. I had to print a year’s worth of email, amounting to 1.5 reams of paper. If I didn’t keep all of these, I don’t think the outcome would have been as positive.
5. Love data
An audit is not a time for broad brush strokes. Data is your friend. Lots of it. All those emails I printed? I also created a spreadsheet detailing the purpose and estimated time spent on each and every one of them. Yes, it took HOURS, and wasn’t exactly how I wanted to spend my evenings after work, but detail is what the IRS wants to see. There is nothing better to prove your case than good data.
6. Have a really good memory
I tend to be a visual person with a penchant for remembering dates, times, conversations and even the weather. As I went through a year’s worth of email, I was able to jog my memory and recall pretty clearly what transpired. It helped a lot. If you struggle with remembering such irrelevant minutiae, keep really good records. I mean REALLY good. Without good records, however, a good memory alone is not a viable proof of documentation.
7. Have patience (you’ll need it!)
An audit is the time to practice the art of meditation and extreme patience. Gathering and preparing the information your accountant needs to back up your case is an exercise in patience. Most of us like to move forward and few relish the thought of reliving a prior tax year, especially when you know April 15th is right around the corner!
8. Keep your frustration in check
You might go through a range of emotions during an audit from disbelief to acceptance to anger and frustration. We did. When you think about how corporations and the ultra elite have many doors and loopholes to avoid paying taxes, you, the little person with no power, tend to feel a little bitter. Sometimes life isn’t fair and this is one of them. Do yourself a favor and accept it and move on. Not doing so only makes you miserable.
9. Think customer service
Approach your audit with an eye for what the ‘customer’ wants; what makes THEM happy. This goes hand in hand with being calm, professional and prompt. You can’t fight the process so don’t make it harder on yourself by trying. Deliver the goods with a smile. It’ll help you keep your wits about you.
10. Have Patience No. 2
Yes, patience is that important because an audit is a game of providing information then waiting. Then providing more information and waiting. There’s no easy button to speed up the process.
11. Don’t forget your day job
Remember those stretch goals you set for 2012? Do your best to stay focused and not let them slide because of an audit. This is one of those don’t do as I do advice tips. One of my goals was to write a lot more this year and push myself relentlessly out of my comfort zone. I lost momentum and creative energy with the time spent on compiling the information requested and stopped writing in the evening. I now need to re-instill the vigor and discipline.
12. Remember that an audit is really just another obstacle to overcome
While an audit is no picnic, it’s not the end of you, the dutiful taxpayer, either. You will get through it one way or another. Take it seriously, because it is serious, but remember that this time will pass.
While I didn’t completely let the audit derail the work that matters, it definitely put a damper on my enthusiasm. It was always there, nipping at my heels. The experience reaffirms that it really does pay to take the high-road when it comes to taxes.
At least we were able to sleep easy at night throughout the process knowing we didn’t have anything to hide and enjoyed an immense sense of relief when they closed the audit without making any changes. Not sure if any disclaimers are needed here, but if so, your mileage may vary and do consult a tax professional as I’m simply one marketing guy sharing a perspective. Do you have any audit stories or tips you’d like to share?
Featured image courtesy of 401K via Creative Commons.