What Do I Do When My Tax Return Is Audited?
Consider representation when the IRS comes calling
on September 27, 2017
Updated on August 9, 2022
Each April, Illinois residents file their tax returns, most hoping for a big refund. For a select few, however, the response from the Internal Revenue Service (IRS) is not a check but a notice of a tax audit. Although the word “audit” conjures up horror stories of federal agents busting down your door, the actual process is far more civil—and potentially beneficial—than you may think.
“Whenever someone gets that letter from the IRS, it feels like a personal attack, so you have to walk back from that,” says Michael T. Mazzone, a tax attorney with Pioneer Wealth Partners in Chicago. “I’m not necessarily saying that feeling is wrong, but ultimately you have to look at it from a cost perspective. How much money and time will this cost you?”
How the IRS Selects and Audits Tax Returns
The first thing to understand about audits is that they are actually quite rare, especially for the average taxpayer who does not have much income beyond their regular wages. In fact, according to a 2016 article published by Kiplinger, the normal chance of an IRS audit is only about 1-in-119, and those odds improve to 1-in-130 if you do not have any farm or business income or claim itemized deductions.
Even if you are unlucky enough to be the one out of the 119, you should not assume the IRS office thinks you have done something wrong. Most returns are selected by audit based on random selection and computer screening. The IRS uses a statistical formula to compare returns against the “norm” for a given group. Once a return is identified by the computer, an IRS auditor conducts a personal examination.
Only if the auditor finds something “questionable” is an audit triggered. Even then, the taxpayer may not have to personally appear before the IRS. Most audits are conducted by mail. Typically the auditor will request additional information from the taxpayer, such as receipts to support a particular deduction. In many cases, simply providing this additional information to the IRS will satisfy the auditor’s concerns. There are even cases where an audit reveals the taxpayer is entitled to an additional refund.
Calling a Lawyer Can’t Hurt
If the IRS requests a significant amount of information—more than you can reasonably provide by a correspondence audit—an in-person or field audit may be necessary. At this point, if not before, you should consider hiring an Illinois tax attorney. Working with a tax attorney is especially important if you disagree with the result of the IRS audit. You have the right to seek review of an auditor’s determination with IRS management, and if necessary the IRS Office of Appeals or the U.S. Tax Court.
“You really want to be proactive with the IRS as much as possible,” Mazzone says. “There are a lot of deadlines that, if you let them pass, it will immediately close the case and send it to appeals or they’ll immediately assess.”
The biggest benefit of a CPA, tax professional or tax attorney, is familiarity with the system and institutional knowledge of the IRS. “Any time that goes by where you don’t respond appropriately or don’t have enough knowledge to make the right first impression, that can be big,” Mazzone says. “A professional will know how to manage the conversation and limit the scope of the audit to what the IRS is looking for. You don’t want to open yourself up to a larger-scope audit.”
Worrying about cost is an understandable concern, Mazzone says, but any reputable attorney will level with you from Day 1. “You want to find a professional who’s up front right from the beginning. It can get very expensive because it can be a lot of work. But if the assessed liability is minimal, you want a lawyer who says it’s worth doing a cost analysis and figuring out if it’s worth seeking representation, just paying it, or trying to work on portions of it yourself.”
Mazzone works with a lot of clients in this piecemeal fashion to make sure it’s best for their individual needs. “Sometimes I say, ‘just pay it,’ and other times it’s, ‘I’ll work with you on this specific issue because it can save you a lot of time and money.’”
If you want more information on this area of tax law, see our tax overview.