Receiving a notice from the IRS can be stressful, especially when the notice says that your tax return is being examined or audited.
An IRS audit does not automatically mean that you made a mistake. The IRS may examine a return to review specific items, request supporting documentation, or verify information reported on the return. Audits can be conducted by mail or through an in-person examination.
For some taxpayers, handling an audit alone may be manageable. For others, having an experienced tax professional represent them can make the process easier and help ensure their rights and interests are properly addressed.
Understanding IRS audit representation can help you determine when professional assistance may be appropriate.
What Is IRS Audit Representation?
IRS audit representation is when an authorized tax professional acts on your behalf when dealing with the IRS regarding a tax matter.
Depending on their credentials and authorization, an eligible representative can communicate with the IRS, discuss the tax matter, provide information, respond to questions, and advocate for your position.
The IRS recognizes a taxpayer’s right to retain an authorized representative when dealing with the agency. Attorneys, certified public accountants, and enrolled agents generally have unlimited representation rights before the IRS.
This means you do not necessarily have to handle every part of an audit yourself.
What Happens During an IRS Audit?
The IRS conducts audits through different methods.
A correspondence audit is generally handled through the mail, while an office audit or field audit can involve an interview with an IRS examiner.
The IRS notice should explain:
- Why your return is being examined
- Which tax year is involved
- What information is being requested
- Where to send documents
- Whether an appointment is required
- How you should respond
The specific information requested depends on the issues being examined.
For example, the IRS could request documentation supporting income, expenses, deductions, credits, or other items reported on the tax return.
Does an IRS Audit Mean You Did Something Wrong?
No.
Being selected for an audit does not automatically mean that the IRS believes you intentionally did something wrong.
The Taxpayer Advocate Service specifically notes that an IRS audit does not automatically mean something is wrong with the return. The examination may ultimately result in no changes to the return.
An audit can conclude in different ways.
The IRS identifies three general outcomes:
- No change
- Agreed changes
- Disagreed changes
If the IRS proposes changes, the taxpayer has options for responding and, when applicable, challenging the proposed adjustments.
What Does an IRS Representative Do?
An authorized representative can help manage communications with the IRS and assist with the tax matter covered by the authorization.
Depending on the representative’s authority and the scope of the authorization, they may:
- Communicate with IRS representatives
- Receive certain IRS notices
- Discuss the taxpayer’s tax information
- Explain tax positions
- Provide requested documentation
- Respond to IRS questions
- Advocate for the taxpayer
- Help negotiate applicable tax matters
- Assist with appeals when appropriate
The IRS explains that a Power of Attorney allows an authorized individual to represent a taxpayer in tax matters before the IRS.
Who Can Represent You Before the IRS?
Not every person who prepares tax returns automatically has unlimited authority to represent taxpayers before the IRS.
The IRS distinguishes between tax return preparation and representation rights.
Attorneys, CPAs, and enrolled agents generally have unlimited representation rights before the IRS. This includes representation involving audits, payment and collection matters, and appeals.
Other individuals may have limited representation rights depending on their qualifications and the circumstances.
If you are hiring someone to represent you during an audit, ask specifically about their IRS representation credentials.
What Is Form 2848?
Form 2848 is the IRS Power of Attorney and Declaration of Representative.
This form can be used to authorize an eligible individual to represent you before the IRS for specified tax matters and tax periods.
The IRS explains that Form 2848 allows an authorized representative to represent the taxpayer and receive and inspect confidential tax information covered by the authorization.
The form should identify the applicable tax matters and periods.
This is important because your authorization is not necessarily a blanket authorization covering every tax issue you have with the IRS.
What Is the Difference Between Form 2848 and Form 8821?
These forms serve different purposes.
Form 2848, Power of Attorney and Declaration of Representative
This allows an eligible individual to represent you before the IRS for specified matters and periods.
Form 8821, Tax Information Authorization
This generally allows someone to receive or inspect your tax information but does not give that person the same authority to represent you before the IRS.
The IRS recommends using Form 2848 when you want someone to represent you, while Form 8821 can be used when you only want someone to receive or inspect tax information.
Understanding this distinction can help you choose the appropriate authorization.
When Should You Consider IRS Audit Representation?
There is no requirement that every taxpayer hire a representative.
However, professional representation may be particularly helpful when an audit involves complicated tax issues, substantial potential adjustments, or documentation that is difficult to organize.
You may want to consider professional representation if:
- You received an IRS audit notice
- The IRS is questioning multiple tax-return items
- The audit involves a business
- Your tax return contains complex transactions
- The IRS is proposing a significant adjustment
- You are unsure which documents to provide
- You disagree with the IRS findings
- You are concerned about penalties
- You are uncomfortable communicating directly with the IRS
- You need help understanding your options
The complexity of the situation is often more important than the mere fact that you received an audit notice.
Should a Business Owner Get IRS Audit Representation?
Business audits can involve additional documentation and financial records.
Depending on the business, the IRS may review information involving:
- Business income
- Operating expenses
- Payroll
- Contractor payments
- Asset purchases
- Depreciation
- Business deductions
- Bank records
- Inventory
- Other financial transactions
For a small business owner who is already responsible for running the company, gathering records and responding to an audit can become time-consuming.
Professional representation can help organize the response and keep communications focused on the issues being examined.
What Documents Might the IRS Request?
The documents requested depend on the audit.
For example, the IRS may request documentation supporting items such as:
- Wages
- Business income
- Bank deposits
- Business expenses
- Charitable contributions
- Mortgage interest
- Medical expenses
- Investment transactions
- Depreciation
- Other deductions or credits
Your audit notice should identify the specific information requested.
You should carefully review the notice before sending documents because providing irrelevant information can make the process more confusing.
Should You Send Everything to the IRS?
Not necessarily.
You should respond to the IRS according to the instructions and scope of the audit notice.
If you are unsure about what documentation is relevant, a tax professional can help you understand the request and organize your response.
This is one area where professional representation can be useful.
Instead of simply sending a large collection of financial records, your representative can help identify documentation that directly supports the tax items being examined.
What Happens If You Disagree With the IRS?
You do not necessarily have to accept the IRS’s proposed changes.
If you disagree with the findings, you may have options for challenging them.
The IRS explains that taxpayers can request a conference with an IRS manager and may have appeal or alternative dispute resolution options depending on the circumstances and timing.
Your representative can help you understand the basis for the proposed adjustment and determine what documentation or arguments may support your position.
What Happens If the IRS Finds No Changes?
An audit does not always result in additional tax.
If you provide sufficient documentation supporting the items being examined, the IRS may conclude the audit with no changes.
A no-change audit means the IRS accepts the return as filed for the issues examined.
This is one reason taxpayers should not assume that receiving an audit notice automatically means they owe additional money.
What Happens If You Agree With the IRS?
If you agree with the IRS’s proposed changes, the audit can generally proceed toward resolution based on those findings.
The IRS explains that taxpayers who agree with audit findings may be asked to sign the examination report or a similar form depending on the type of audit.
If additional tax is owed, you may then need to address payment arrangements or other applicable collection options.
Can a Tax Professional Communicate With the IRS for You?
Yes, when properly authorized.
A taxpayer can grant Power of Attorney to an eligible individual so that person can represent them before the IRS for specified tax matters.
The IRS states that a Power of Attorney allows the representative to represent, advocate, negotiate, and communicate on the taxpayer’s behalf within the scope of the authorization.
In many situations, this can reduce the amount of direct communication the taxpayer has to handle.
However, taxpayers remain responsible for meeting their tax obligations even when they authorize someone to represent them.
Do You Have to Attend an IRS Audit Interview?
Not necessarily.
Taxpayers have the right to retain an authorized representative.
The IRS states that taxpayers who retain representation generally do not have to attend an interview with their representative unless the IRS formally summons them to appear.
This can be particularly helpful for taxpayers who are uncomfortable discussing complicated tax matters directly with an IRS examiner.
Your representative can help determine what participation is required based on the specific audit.
How Can You Prepare for an IRS Audit?
Whether you represent yourself or hire a professional, preparation is important.
Start by carefully reading the IRS notice.
Then:
Identify the Tax Year
Make sure you understand which tax year and return are being examined.
Identify the Issues
Determine exactly which items the IRS wants to review.
Gather Supporting Documentation
Collect records that directly support the items being examined.
Review Your Tax Return
Go through the relevant sections of the return and compare them with your supporting records.
Keep Communications Organized
Maintain copies of correspondence, documents submitted, and responses received from the IRS.
Meet the Deadlines
Pay close attention to the response deadline listed in the IRS notice.
If you need additional time or are unsure how to respond, address the issue promptly rather than waiting until the deadline approaches.
What If You Lost Your Tax Records?
Missing records can make an audit more difficult.
Depending on the type of documentation, you may be able to obtain replacement records from:
- Banks
- Employers
- Mortgage companies
- Investment firms
- Payment processors
- Vendors
- Other financial institutions
Your tax professional can also help determine what alternative documentation may be useful.
This is another reason why maintaining organized tax records throughout the year is important.
How Does Good Bookkeeping Help During an Audit?
Accurate bookkeeping can make an IRS audit easier to manage, particularly for business owners.
Organized records can help show:
- Where business income came from
- Which expenses were incurred
- When transactions occurred
- How expenses were categorized
- Which records support deductions
- How financial statements were prepared
NOW Tax Planning provides bookkeeping services designed to help businesses maintain organized financial records throughout the year. The company notes that accurate bookkeeping supports tax preparation, financial reporting, and informed business decisions.
Good records do not guarantee an audit outcome, but they can make it easier to respond to documentation requests.
How Can Audit Representation Reduce Taxpayer Stress?
An IRS audit can be difficult because taxpayers may not know what the IRS is asking for or how to respond.
Having an authorized professional involved can provide a clearer process.
The representative can help:
- Interpret the notice
- Identify relevant records
- Organize documentation
- Communicate with the IRS
- Explain tax issues
- Respond to proposed adjustments
- Evaluate potential next steps
The goal is not simply to make the audit disappear.
The goal is to ensure the taxpayer responds appropriately and understands their options.
What Are Your Rights During an IRS Audit?
Taxpayers have important rights when dealing with the IRS.
The IRS Taxpayer Bill of Rights includes the right to:
- Be informed
- Receive