Dear taxgirl, I need some help. I am being audited by the IRS and I don’t know what to do. I am self-employed (web design) and I do not have many records to back up my tax returns. I didn’t lie on my taxes but I can’t prove it. I don’t know what to do or what to give them or not (the letter asked for a lot of things including my PayPal statements). I’m scared because I don’t know what to do and I don’t want to lose my house. Please help.
I know from experience that audits suck. But they’re not the end of the world. So don’t be scared. You’ll get through this.
Here’s my take. While it’s not impossible to manage an audit on your own, I don’t recommend it. And based on what you’ve said so far, it sounds like a fairly comprehensive examination – it also sounds like you’re already somewhat involved in the process (PayPal statements are a pretty specific request). So here’s my best advice: hire a good tax attorney.
I know, I know. You’re worried about the expense. Two things: 1, your legal bills for the audit probably aren’t as bad as you think they’ll be (and may even be deductible) and 2, a good tax attorney can be instrumental in digging you out of trouble at audit or reducing your potential final bill.
So I’ll throw in a third thing: a neutral party like an attorney can make your life much easier. I’ve had a number of clients who have dug themselves deeper into trouble just based on the “freak out” factor. That’s when a client gets worried about the audit and gets overly defensive – then they either say too much or not enough to the IRS. Even worse: the client stops answering IRS altogether. That’s the worst thing that you can do. No matter whether you hire an attorney or not, cooperating is generally a good idea.
Nobody wants to be audited. But it happens (and it’s happening more often to more taxpayers these days). Take a deep breath and find a good tax attorney. You’ll be glad that you did.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.