Yhyjyk

I received an IRS audit for the following:

I had to call them within 10 days to confirm receiving the letter. And I've scheduled an appointment 2 weeks later.

They basically said I just need to come in with bank and credit card statements for the years in question and they will go over it. They also mentioned my filing red flagged due to my expense and income ratio was much greater than previous years.

My question is:

• Should I hire a tax person to represent me? Or go in myself? I'm just afraid of saying the wrong stuff.


• Yes, I have all my expenses organized as I mostly buy stuff from amazon and ebay related to my business, but obviously there could be items that are "questionable".


• What are some other things to be aware of?

There isn't much info and stories of others that has had a interview audit for "all expenses" relating to a business such as "cost of goods sold".

Should I hire a tax person to represent me? Or go in myself? I'm just afraid of saying the wrong stuff.

I can't tell you whether or not you should hire someone, but here are some things you should consider:

• Penalties/Interest: After an audit, if you owe additional tax you'll pay 0.5% per month up to 25% of owed amount in penalties and will also pay interest at 3-6%.




• Fraud vs Negligence: If you messed up pretty badly (without it being considered intentional), you may be considered negligent, which would result in an additional 20% penalty (based on additional tax owed). If they believe you deliberately evaded taxes you could face civil or criminal tax fraud charges. Civil tax fraud can result in an additional 75% penalty (instead of the 20% negligence penalty), while criminal tax fraud can result in very high fines and jail time.




• Cost of representation - Depending on your income/deduction levels the cost of an attorney could vastly exceed the additional tax/penalties that the audit resulted in. Of course, if facing criminal tax fraud charges I'd want an attorney. This doesn't mean representation has no value, just that the monetary benefit (if any) they can provide is most likely going to be less than it costs to hire them.

Most audits end with no change. Next most common are those where there is a change and the taxpayer owes penalty/interest, but they are not considered to have been negligent or to have committed tax fraud.

Personally, I wouldn't hire someone to represent me in an audit because I am pretty confident that all of my deductions are well-supported and appropriate and that any mistakes I have made wouldn't be considered fraud. I'm also familiar enough with the process that I'm not particularly anxious about audits. Many people find audits to be very stressful and aren't confident about their tax preparation, so paid representation can be very helpful to them.

If I were to hire someone I would most likely hire a tax attorney rather than a CPA/tax-preparer. Attorney-client privilege is a big deal.

Yes, I have all my expenses organized as I mostly buy stuff from amazon and ebay related to my business, but obviously there could be items that are "questionable".

This is the most concerning part of your question. If you just mean that you understand why the IRS would want you to provide supporting documentation or justify them, then this is less concerning. If they are questionable because you know it's 'creative' or not typically acceptable then that could be problematic.

What are some other things to be aware of?

Since this letter is not a summons, you do not have to appear, a representative can handle this 'examination' for you.

If you paid for tax-preparation you may have some sort of audit assistance available to you, that might be worth looking into.