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Surviving the Personal Tax Audit


The IRS will assure you that you've been randomly selected for closer examination. You may feel totally unhinged, like you are entering Dante's Inferno. For one Manhattan man, the letter about the audit was the opening act of a five-month-long drama.

He methodically gathered all his receipts and documents to corroborate his business deductions as a self-employed writer. Everything filled several boxes. He heard stories from people who shared his predicament — such as one woman who was summoned to the IRS offices five times.

Looking back, he is surprised that he was so smug about his preparations, even waving off his tax preparer when he offered to accompany him. Oh no, he thought, I can handle it.

Big mistake.

Sleeping very poorly for the two days before his initial meeting with IRS examiners, he was exhausted when he arrived at the IRS office. After passing through tight ground-floor security, he ascended a long escalator leading to another security desk as he towed documents in a cart behind him.

He was greeted by an examiner with a shaved head — the bad cop, he decided. He rarely smiled. In a conference room, a second examiner, shorter and friendlier with shoulder-length hair — the good cop — took notes. Two examiners? Was I this important or in so much trouble, he wondered.

The upshot? Three hours to learn that his home-office deduction was in question. This time, he listened to his tax preparer, seeking a second interview to which his preparer would tag along.

The preparer had claimed 47.3 percent of his client's apartment for work. The examiner asked for proof of rent, actual floor plan and square footage. The preparer requested a third meeting.

At the third session, an IRS supervisor accompanied the bad-cop auditor. They went back and forth over business use of his client's home. A compromise was reached at 33 percent — so the home office deduction was saved, to the great relief of the freelance writer.

So what did this Manhattanite do right and what should you do if audited?

  • Gather your documents. Start going through your records to find relevant receipts and documents. If you can't find a document, request a duplicate. Auditors won't accept the excuse that records are missing or lost.
  • Contact your tax preparer. He or she can explain the audit process and help you prepare. You can hire a professional tax lawyer as well.

What documentation should you bring? Receipts, mortgage statements, brokerage account statements, and pay stubs or W-2 forms. You may bring record books to substantiate certain claims on your tax return. This is important — if you're unable to document the items in question to the IRS's satisfaction, things get a little more complicated. The IRS will propose changes to your tax return.

You can challenge the agent's assessment and set up a conference with an IRS manager to further review your case, or you can request a formal appeals conference. Keep in mind that interest will accrue on any unpaid tax from the date you filed your return, including the duration of the audit process. So it's usually not worth appealing unless you're almost certain you'll win.

As long as everything you claim on your tax return is factual, an audit should be no more than a minor inconvenience. If you're an honest taxpayer who knows what to do in the unlikely event of an audit, you should sleep soundly.

What happens after the audit? You will be notified of the findings. The auditor will explain any adjustment to you and/or your representative before finalizing the audit. If you have information auditors haven't considered, or if you believe a mistake has been made, contact the auditors promptly. They will discuss future filing responsibilities and answer any questions you have concerning the audit.



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Kim & Lee
Kim & Lee, LLP
2305 W. 190th St. Suite 100
Torrance, CA 90504
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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