An audit notification from the IRS is enough to strike fear even before one opens it. The very idea of having revenue officials scrutinizing every piece of evidence and going through every line with a fine tooth comb is frightening, not to talk of penalties and/or additional taxes. However, open the letter first to see what it says because many times IRS simply wants some additional documents and information.

An IRS audit need not be stressful if you have taken care of filing your tax returns with care and ensured that you have not missed out on anything. However, it is common for people to make mistakes. Even businesses that employ professionals for bookkeeping and filing tax returns make mistakes at times. Panic will not serve any purpose but knowing how to prepare for the IRS audit will give you enough confidence to face the situation.

Step by Step Preparation for IRS Audit

1. The first step is obvious. Read the letter and understand the scope of the audit. It can be a full audit of your tax return or just for a part of it. Sometimes, the IRS simply wants an explanation regarding a tax credit or deduction that you may have claimed.
2. It is your legal right to get someone to represent you. However, it depends upon you whether you want a CPA to represent you or not. The reality is that the U.S. Tax Code is fairly complicated for a layman to understand. It is better that you consult a professional, it is worth the expense.
3. Gather Information. You need to gather every bit of information relating to the year under audit. Even if you filed the return through a professional, you still need to collect relevant information.
4. The information you need includes but not limited to bank statements, pay slips and evidence of investments made for claiming deductions. Make copies and send only those documents that have been asked for. Send copies and keep originals with you just in case they get lost in mail.
5. In case of face to face meetings, remember that the IRS is not your friend. Be cordial but the mantra is to answer questions and not to volunteer information.
6. The fact of the audit indicates that there might be some mismatches that the department wants to confirm. There is no need to panic even if there are some additional taxes to be paid. If the matter is not serious, the IRS will happily arrive at a settlement and allow time to pay tax.