I recently found out that I was randomly selected to be audited in April for the tax year 2006. The items that are currently being audited are charitable contributions, schedule A, and employee business expenses. I didnt make a very high income that year and will be representing myself. Is there any general preparation advice you can offer me on how to prepare for it? Also should I file now or wait until after the audit? Thanks

Here are some practical suggesgtions for you to consider when representing yourself.

1. Have a copy of all items requested by the IRS auditor.
Try and bring as much of all the items requested in the audit letter.

2. Do not bring additional years tax returns that are not required.
It is not considered wise to bring more items and additional past returns if not required to do so. Only answer the questions the IRS agent asks, answer them as honestly and truthfully as possible. Don't volunteer information and keep your answers brief.

3. Regarding Charitable Deductions.
You must bring copies of all cancelled checks and cash receipts for the donations. Even if the total does not match, take as much of the receipts and cancelled checks. Here the agent just wants to make sure that you are not exaggerating your claims.

In case of difference that is relatively minor, the IRS agent will grant you no adjustment required due to "de minimis" reasons.

In case of a material difference, suggest that you do not have the back up and will not be able to provide it, as adequate records were not maintained. Try and be honest about it by stating that you simply made an estimate and you will be surprised about the reaction you get.

4.Regarding Schedule A Items.
This is mostly due to the charitable deductions and the employee business expenses flowing through to this schedule. The mortgage and property taxes are already reported to the IRS so this is not a big problem.

You must have a good reason to claim the employee business expenses. Sometimes, a letter from your employer stating that employees are required to strictly pay for their own clothing, boots and meals on the job.

I guess in your profession it seems that the meals have to be bought due to the nature of the job and health reasons. This communication or policy should be brought to the IRS audit, At least you might be able to overcome the disallowance of the meal expenses. What the agent will propose is a daily meal allowance for you and an amount in excess of this would be disallowed.

Of course, you must provide receipts for all the meals expenses paid either by cash or credit cards. If you claimed boots or special clothing, you must bring the proper documentation to substantiate these expenses.

Lastly, you must not be nervous, for this is appears to be a more of a random audit, and the IRS is only selecting 1 years tax return for examination.

5. Regarding filing 2007 Tax Return.
I would also advise that you delay filing your 2007 tax return until the completion of the audit. In this manner, any items found to be non-deductible are not claimed again in 2007 tax return. Similarily, once an item of deduction is found reasonable on the 2006 tax return, these can then be confidently claimed on the 2007 tax returns.

Good luck and please let us know how the audit went.

__________________
Ask TaxGuru
Please refer to the legal disclaimer.

I have been told many times that it is prudent to hire a CPA or an Enrolled Agent and let him or her accompany you to the audit!

I think an Enrolled Agent may charge anywhere from $75 to $100 per hours whereas a CPA would charge anywhere from $150 to $200 per hours, of course that depends on your area!

It is a good idea to take a professional with you, because he will protect you against the Agent and can effectively represent much better than you could. It could also strengthen your case, and you will be better prepared especially taking a tax professional with you!

I strongly suggest that you consider hiring somebody to take with you at the Audit.