Tax audit, any advice??

Question

I'm being audited by my State, (Montana) for personal itemized deductions. Any pearls of wisdom??

Answer 1

First, it depends on if you did your tax return yourself, or if you used a tax pro. If you used a professional, see if they have any guarantees. For example, HR Block has free audit assistance for all of their clients. If you completed the returns yourself, here is a step by step guide to doing your own audit, without having to hire someone.

First, answer only the question asked. No more no less. For example, if she asks you what your occupation is, just give your job title, not a daily account of what you do.

Second, is this audit for one or three years? I will explain how to do one year, but if it is for three, just take each year separately.

Now remember that you can take a deduction when you PAID it not when you got the bill. So be careful with your real estate taxes. :)

Get a copy of your tax return that you can write on, you'll need one for the auditor as well.

Then separate your receipt into these categories....Medical, taxes paid (personal and real estate), mortgage statements include home equity, points (if you bought a new house or refinanced), charitable cash, charitable non cash, work related expenses.

Be sure to include a mileage log if you volunteer anywhere or if you have to drive for work and are not reimbursed.

Now that you have your piles separated. Total your medical bills and run a calculator tape on the top. Staple or clip the whole pile together. The auditor will probably appreciate your work and be less likely to pick at things if you don't bring a shoebox with you. You'll need to do this for all of your "piles" of paperwork.

Don't forget to take copies of your W-2s and other income statements. They typically verify these.

Now when you are at the audit, keep a copy of your tax return and write in and CIRCLE whatever number the auditor and you both agree upon. This serves several purposes. Number one, it lets the auditor know you aren't ignorant, and number two, it will help you remember what the outcome was. Audits can be stressful, and there are negotiations of sort that go on so the numbers might change frequently.

Read over your taxpayer bill of rights before you go. Most states allow you to stop the interview at any time and seek professional assistance.

I believe that you should be able to do it yourself, but it requires some work on your part. Don't be too nervous though, remember the auditor is not out to get you, they are just doing their job.

Answer 2

Before you rush out and hire a CPA or EA (I see little reason to hire both as at least one respondent stated) consider the scope of the audit and your potential worst case tax liability including any potential penalties and interest first. If the amount at risk is less than the cost of getting outside help it would make more sense to go it on your own with this.

Most audits for itemized deductions aren't sweeping audits of all deductions but focus on one or two deductions only. If you played it straight with your tax return and have full documentation of the deductions that are being questioned and the potential additional tax and penalty are low just bring your documentation with you and you'll be OK. On the other hand if you've been fudging things it would probably be best to claim that you've lost the documentation and can't reconstitute it and just let them assess the taxes and penalties.

If the amount in question will result in a large amount of additional taxes, penalties, and interest if disallowed then by all means get some professional help. This would be especially true if you are "pushing the envelope" on a large deduction where there is a question of the interpretation of the law or if there is a State revenue ruling that goes contrary to your position, etc. A CPA who specializes in taxes and has MT audit experience, or a tax attorney or EA with similar experience would make sense. Any of them can represent you with the tax authorities and assist you in preparing for the audit though I see no need to hire multiple experts at least at the start.

Answer 3

I strongly DISagree. You should consider hiring an Enrolled Agent (EA) as well as a CPA. However, the first issue is whether the state has anything substantitive to go after. If the audit is cursory and you are certain there are no problems, you can handle it yourself. If you have some issues, then look at an EA (go to NAEA.org) to find a good rep in your area or to the AICPA site or get a good local referral.

Answer 4

You should most certainly hire a CPA to represent you. The CPA can advise how aggressive you should or shouldn't be regarding certain expenses and might also find some deductible expenses you didn't realize you had. Another plus is that a CPA can likely get the IRS to back down off of certain types of penalties.

Answer 5

People hear the word auction and get themselves all worked up. The auditor is not out to get people. Assuming your deductions were done honestly, use this as an opportunity to learn. Take Bostonianmo's advice; this was just my small 2 cents worth.

Answer 6

hire a cpa to handle the audit on ur behalf. one of the biggest mistakes people make is trying to save a buck and talk and deal with the tax authorities on their own. what people don't realize is that the tax laws can be very complicated. it usually ends up costing them more in the end and they end up bringing in a professional to clean up the mess.

Answer 7

yes communication with them don't ignore they will not go away