Step 3

Knowing What the IRS Will Be Looking For

The second question (the first being: "Why me?") everyone asks after they open the IRS envelope and read the "audit invitation" is: "What are they going to be looking for?" There's not a tax practitioner in this country who hasn't heard that question dozens of times.

The problem with that question is that it's often asked too late; that is, too late to be any help in preparing the tax return, and sometimes too late for the preparation of the audit. Even though an audit-proofer understands that his chances of being audited are slim, he or she still wants to prepare for that possibility.

AUDIT-PROOFER'S STRATEGY RULE

Audit-proofing your tax return means knowing what the IRS will be looking for long before your tax return is prepared, and beating the auditor to the punch.

Tax examiners are impressed when they encounter taxpayers who are not only versed on the finer points of the tax law, but who are also totally prepared with all the substantiating documents to pack up their deductions and expenses. A tax examiner impressed with your cooperation and preparedness may be less inclined to probe deeper to find something wrong, if he sees that you are very much on top of everything. Tax examiners develop gut instincts and feelings about the taxpayer very early in the examination. Sometimes it's almost psychic the way that they perceive their subjects.

AUDIT-PROOFER'S STRATEGY RULE

Your objective should be to impress the tax examiner. Begin during the tax year with your recordkeeping program, as discussed in Step 1.

If you have developed a system of records, or at least a document retention program (Step 1), and if you have done your best to obtain the correct information (Step 2), then you will be prepared for the third step in audit-proofing your tax returns: Knowing what the IRS will be looking for in the event you are audited.

Knowing what the IRS will be looking for involves two aspects:

• Knowing what documents are necessary to substantiate your expenses and deductions; and
• Knowing what points of law they will be checking.

1. The First Aspect: Correct Documentation
2. The Second Aspect: Correct Information
3. Special IRS Audit Targets You Should Know About
4. Exhibit 3-1: Proof You Will Need to Substantiate Your Deductions
5. Exhibit 3-2: Checklist Of What Rules and Information The IRS Will Be Verifying

Next Section: Step 4: Avoiding Tax Scams, Shams, and Illegal Tax Shelters

Audit Proofing Main | Home

© 1986, 1998 to 2002, Jack Warren Wade, Jr.