Surviving An Audit

While most Americans have a less than 2% chance of being audited, there are some red flags that make it more likely. If the IRS has informed you that you're going to be audited this year, listen up; Beverly Goodman, Sr. Editor for SmartMoney Magazine, has some tips to help make the process as painless as possible.

If you're being audited, the first thing you need to do is get all your paperwork and documentation together. "Any time that you are claiming a deduction... you want to have some sort of back-up documentation to go with it. If it's a home office deduction, you want to make sure you have all of your utility bills, you want to have all of your mortgage payment [stubs]. The same goes for charitable deductions," says Goodman.

However, if you're a little more disorganized, you can ask for time to get your paperwork together. "Pretty much everybody needs more time, at least to make the emotional or psychological adjustment to being audited," says Goodman. She also suggests talking to a professional before going into your audit, or consider hiring one to go with you. When it comes to things like audits, it's a good idea to have back-up.

If you don't agree with the auditor's assessment, it is possible to challenge what they say. You don't need to into the appointment with a pro in order to do so. "It's a judgement call," says Goodman. If the reason you're being audited is complicated, though, it's probably a good idea to work through it with a professional.

One possible disagreement may come from your bill and how much you owe after the audit. However, it is possible to negotiate. You can set up a payment plan, or installment agreement. Or, if you know you can't afford to pay what they're asking, you can go through and offer and compromise, which is a negotiation on the final sum.

If all else fails, you can try to get the IRS to "53" your case. "If the IRS assigns the 53 status to your case, it means that they think it's currently uncollectable," says Goodman. "It doesn't mean they won't try later, and they have any time in the next ten years to try again, but for the moment, they're sort of boxing up your file, putting it on a shelf," They could come back to it later, but it's also possible that they won't pursue the case again.

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By Erin Petrun