There are some definite dos and don’ts in dealing with an auditor. This section explores the dangers of over-talkativeness, what to do when you have something to hide, getting along with difficult auditors, what happens when a new auditor comes into the scene, and acceptable ways to stand up to an auditor.
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Mum’s the Word
IRS encounters are inherently stressful. People under stress often talk too much. The IRS knows this, and so auditors are trained to listen and create opportunities for you to talk. They examine your records silently, hoping you’ll fill the void.
CAUTION:
Some people, uncomfortable with silence, hang themselves by blurting out answers to questions that weren’t even asked.
EXAMPLE:
During Randy’s audit, he volunteered that he had always deducted clothing expenses because he had to wear nice clothing as a salesperson. Until then, the auditor hadn’t noticed this deduction, which was fairly large. The auditor disallowed the deduction and expanded the audit to cover the two open years. Randy came away owing several thousands of dollars for three years, thanks to his big mouth.
If you’re really uncomfortable with prolonged periods of silence, perhaps you should bring someone along to kick you (gently) if you begin to babble on.
Eventually, you will have to talk
Every auditor asks routine interview questions. Keep in mind that every question in the auditor’s script has a reason—even if it is not obvious to you. Think carefully before you answer any question. Keep your answer to a minimum. Do not deliver your best Shakespearean-like monologue. Instead, the best responses to a question posed by an auditor are:
- Yes.
- No.
- I don’t recall.
- I’ll have to check on that.
- What specific items do you want to see?
- Why do you want that? What does this have to do with the year
- being audited?
Never say more unless it is absolutely necessary. As a rule, you can’t hurt yourself when your mouth is shut. For example, if the auditor asks about items that were not listed in the audit notice, say you didn’t come prepared to discuss them. The auditor may just drop it or, at worst, set a second meeting date.
CAUTION:
Never lie. Don’t say “no” if the answer is “yes.” If you don’t want to hang yourself, say, “I don’t recall,” “I have to check on that,” or “My tax preparer might know, but I’m not sure.”
Sometimes, auditors ask for the information they already possess just to test your credibility. A favorite technique when you failed to declare a dividend or interest income is to ask if you have any investments— when you obviously do because the IRS Form 1099 shows that you earned interest and dividends. Or, the auditor may ask about your boats, planes, or vehicles, even though he or she has a printout from your state motor vehicle department.
Don’t offer favors to the auditor
Auditors must report offers of favors. Some taxpayers are from countries where bribing government officials is the norm. Forget it. IRS employees are among the cleanest civil servants of all—maybe because they know the IRS has zero-tolerance for bribery and that they would go to jail if caught. They can accept a cup of coffee at your place, but that’s about it.
If you offer a discount on merchandise and the auditor ignores you, consider yourself lucky. An outright bribe attempt will get you a visit from the criminal investigators—as well as a very thorough audit.
Try to get along with the auditor
Don’t go into the audit with a chip on your shoulder and an anti-IRS attitude, even if you think the agency is the devil incarnate. The auditor knows you are not happy to be there, but is just doing his or her job and didn’t have anything to do with picking you. Remember what Grandma said about catching more flies with honey than with vinegar.
When meeting the auditor or revenue agent, be polite, even if it hurts. Try to chitchat about the weather, traffic, or sports to break the ice. If the office auditor seems cold and businesslike, don’t take it personally. They are under time pressures and may want to get right down to business. Field auditors, on the other hand, are encouraged to chat you up.
You can be friendly without disclosing anything that might hurt you by avoiding talking about yourself. Try showing an interest in the auditor’s job and life.
- “How long have you been with the IRS?”
- “How does someone get to be an auditor?”
- “Where did you go to school?”
- “Do you have children?”
Everyone likes to talk about their favorite subject— themselves. At worst, it reduces the time for examining your return.
While you don’t have to attend the audit with a chip on your shoulder, you also don’t have to become best friends with the auditor. Some taxpayers meet great success by taking a defiant stand with an auditor—for example, asking the reason for each question. Some auditors are intimidated by this. Others are so unused to being challenged that they get flustered.
A small number of taxpayers have found that certain types of obnoxious or peculiar behavior—such as attending with bad B.O. or giving a field auditor a dark, noisy, cramped space—work wonders.
Have you seen this auditor before?
The Internal Revenue Manual discourages, but doesn’t prohibit, future examinations by the same auditor within three years. But, the first audit must have been officially closed. If you recognize the auditor and you don’t want that one again, complain to the auditor’s manager. This might happen if your local office has only a few auditors.