Seeing Inside the Mind of the IRS

​While most of us are never audited, when it happens we can feel like a lamb thrown in a room with a lion. The IRS auditor does these audits every day. They know what to look for, and may ask leading questions that are easy to answer incorrectly. Here are some tips to help you when you are in the crosshairs of an IRS audit.

Timely Address IRS Correspondence

​Do not let any issues raised in an IRS correspondence letter get to a point where a face-to-face examination is required.

Ask for Help

​Do this right away. Too many clients think the problem is easy to resolve, but inadvertently say the wrong thing, resulting in another audit issue.

Understand What's Being Asked

​Clearly understanding the core question behind the audit can simplify the solution. Why is the IRS asking to see your 1099s? Do they have a form that you do not? Why are they asking about your small business profits? Are they thinking your business is a hobby?

See the Audit through the Eyes of IRS Auditor

The IRS focuses auditor training on several areas. These are published in Audit Techniques Guides (ATGs) and are available for review on their web site at irs.gov (search for "Audit Techniques Guides" in the search bar). They are invaluable in identifying areas for potential audits, and can help you understand what the IRS likes to question. While most of the ATGs deal with business taxation, reviewing the topics can be useful in understanding where audit risks are and what you can do to prepare yourself in case of an audit.

Common ATG Topics

Architects	Art Galleries
Attorneys	Business Consultants
​Capitalization versus Repairs	Cash Based Business
Child Care Provider	Construction
Research Credits	​Farmers
Hobbies (activity not for profit)	​Lawsuit Awards/Settlement
Ministers	Partnerships
​Veterinary Medicine	​Winery/Vineyards

​If you have business activity that touches any of these topics, it makes sense to understand how an IRS auditor is trained. By reviewing the specific ATG you will know the process of the IRS audit and gain some insight into how the audit will go.