Got Audited? It’s Not the End of the World!
Here’s What You Need to Know About IRS Audits and How to Handle Them.
Anything involving the IRS, especially audits, can be nerve-wracking and cause some serious insomnia (need Ambien?).
I once saw a colleague go through an IRS audit over her rental property expenses for more than a year. The stress drained her, and it showed every time I saw her during shifts.
If you get audited, remember—you’re not alone. The more money you make and the more businesses you own, the higher your chances of getting audited. It’s just part of life, like catching RSV in January.
But here’s the good news: Most audits aren’t as bad as you think. Let’s break it down.
The Reality of IRS Audits
About 70% of audits are just requests for more information. This typically happens when something on your tax return doesn’t match IRS records. The IRS uses an Automated Underreporting System (AUR) to detect these mismatches and sends a computer-generated letter asking for documentation.
Example:
Your property manager issues you a 1099-MISC for rental income, but you forget to report it on your tax return. The IRS system flags the discrepancy and sends you a notice. In this case, the IRS isn’t accusing you of fraud—they just want you to verify your rental income and pay any taxes owed.
So, don’t panic if you receive a letter from the IRS!
If you do receive an audit letter, here’s what you need to know.
What to Do If You Get an IRS Audit Notice
#1: Respond Promptly—Don’t Ignore the Letter!
The IRS won’t just go away (they are like HSV) and they know where you live! Ignoring the notice will only make things worse.
Instead, follow these steps:
Read the letter carefully—it will tell you exactly what the IRS wants.
Gather the requested documents and send them in—but only if they are appropriate and relevant.
Meet the deadline. If you need more time, ask for an extension rather than ignoring the deadline specified in the notice.
#2: Only Provide What They Request
The IRS is specific about what they want from you. Don’t overshare or send extra documents unless requested.
Example:
If the IRS questions a business trip to Hawaii to acquire rental properties, they might ask for:
Receipts for flights, hotels, and meals
A breakdown of the business trip, including:
What properties you visited
Email communication with the realtor who showed you the properties
Whether you put in any offers
A daily itinerary of your business-related activities
The key here is substantiating your business purpose—the IRS wants to ensure the trip was genuinely for business and not just a disguised vacation. And vvoid oversharing! Giving too much information invites more questions and document requests—and you definitely don’t want that.
#3: Determine whether You Need Tax Audit Representation
Many audits are just simple information requests—like proving business trip deductions. But let’s be real—dealing with the IRS is stressful. If the thought of handling an audit gives you heart palpitations and heartburn, hiring a tax professional might be a good move.
Additionally, consider Hiring a Tax Pro If:
You can’t find receipts or documentation that the IRS is requesting and don’t know what to do.
You can’t afford the penalties and extra taxes the IRS might assess.
The IRS expands the audit to more areas of your return.
In these situations, a tax pro’s help can be worth its weight in gold!
#4: What If You Disagree with the Audit Results?
Once the audit is over, the IRS will send you a final determination of any additional taxes you owe.
If you don’t agree, you have options:
The IRS Appeals Office is an independent branch within the IRS. They act as a neutral middleman to ensure fair treatment for both taxpayers and the government.
Go to Court – If you still disagree, you can take the IRS to court (e.g., U.S. Tax Court or District Court). Warning: Litigation is expensive and time-consuming, but it’s an option if you have a strong case.
#5: Got Penalties? You May Be Able to Get Them Waived!
Good news! If you’ve had a clean record for the past three years, you or your tax pro can request penalty relief by making a written request to the IRS. This simple request could save you thousands of dollars!
Final Thoughts
If you’re making multiple six or seven figures and/or own rental properties or businesses, getting audited is just part of life. Don’t panic—be prepared.
And if dealing with an audit feels too draining, hire a tax pro—it’s an investment that can save you a ton of stress, headaches, and maybe even some money.
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