You filed your income-tax return and checked it off your to-do list. A few weeks later you receive a notice from the Internal Revenue Service that your taxes are being audited. What does this mean? What do you do now?
The key is to remain calm and take the time to gather all your tax documentation, said financial advisor Allan Katz, president of Comprehensive Wealth Management Group. A tax audit is an accounting procedure whereby the IRS examines your individual or business financial records to ensure you filed your tax return accurately. If you prove that your initial return was correct, you won't be asked anything further. However, if the IRS finds errors or any misreporting, you'll have to pay the recalculated return amount and any interest penalties.
Hopefully you have done everything you can to either reduce the risk of an audit or minimize the pain if it does happen, said Katz. And remember, some IRS audits are done randomly. Many are what is called a "desk audit" or "correspondence audit," whereby you get sent a letter that requests clarification or proof of what you claimed on your tax return. If you did receive an audit notice that requires you meet with an IRS examiner, take a deep breath and follow the steps outlined here by several financial advisors who offered their input, so you can quickly resolve the situation.
"The moral of the story is to make sure you do everything legitimately and to keep good tax records," Katz said.
Posted 6 December 2016
— By Jim Pavia, Money Editor