The IRS and most states initiate audits by contacting a taxpayer by phone or letter. Taxpayers will often respond to the initial contact with a mixture of fear and intimidation. They may not want to communicate at all. Alternatively, the inclination may be to do whatever the auditor or examining agent wants to do and whenever they want to do it. Audits characterized by distrust and one-sidedness may prove to be disjointed and unnecessarily time-consuming and stressful.
Any audit should be a cooperative exercise. Taxpayers can exercise a fair amount of leverage to insure that tax records examinations are conducted expeditiously and fairly. First and foremost, a taxpayer will have most, if not all, relevant tax records. If the examiner is not courteous or cooperative, any taxpayer has the option to produce records only in response to a formal summons. Tax agencies do not like to proceed by way of summons primarily because enforcing one through a federal district court takes a lot of time. Another option, always available, is to address complaints to the examiner’s manager. However, always try to work out disagreements with the examiner first.
Both the tax agency and the taxpayer will benefit if the audit is well-planned ahead of time. The planning should start with the examiner’s identification of which tax returns and tax return line items he/she wants to review. The taxpayer and the examiner should agree on consecutive dates so that the audit can proceed and be completed within the shortest possible period of time. The taxpayer’s responsibility is to have the necessary records available at the beginning of the audit. The examiner’s responsibility is to conduct the audit fairly and as quickly as possible. It’s not uncommon for an examiner to identify additional items to review after the audit begins. If the items are ones that should have been identified and disclosed before the audit began, the taxpayer may object.
