Preparing for a Tax Audit

Preparing for an audit is sort of like preparing for a test in school: The IRS informs you of which sections of your tax return the agency wants to examine so that you know what to "study."

The first decision you face when you get an audit notice is whether to handle it yourself or to turn to a tax adviser to represent you. Hiring representation costs money but saves you time, stress, and money.

Who can represent you?

The IRS permits three types of individuals to fully represent taxpayers before the IRS: enrolled agents, certified public accountants, and attorneys. All three are bound by IRS rules of practice. (Tax preparers can represent you at an audit but not in any appeals beyond that.)

If you normally prepare your own return and are comfortable with your understanding of the areas being audited, represent yourself. If the IRS is merely asking you to substantiate deductions, you'll probably do all right on your own. However, if you're likely to turn into a babbling, intimidated fool and are unsure of how to present your situation, hire a tax adviser to represent you.

Even if you choose to represent yourself and find yourself over your head in an audit, you've got a backup. At any time during the examination — such as when you feel a dizzy sensation — the Taxpayer Bill of Rights allows you to request that the audit be suspended until you have time to consult with either an enrolled agent, a certified public accountant, or an attorney. When you make this request, the IRS agent must stop asking questions or requesting documents until you are properly represented.