LP TAX & BOOKKEEPING PROS LLC

Ralph Pinney, EA

McKinney, TX 75072

303-881-9762

Audits

Listen, I know getting anything from the IRS with the word audit on it can make your stomach drop. Most people immediately start wondering if they did something wrong, how bad this is going to get, and whether they can just handle it on their own. The good news is this: an audit does not automatically mean you are in trouble. But it does mean you need to take it seriously and respond the right way.

My job is to help you understand what is happening, what the IRS is looking for, and how to protect yourself so you do not end up paying more than you legitimately owe.

Can you represent yourself in an audit?

Technically, yes. You are allowed to attend your own audit without hiring a tax professional. But here is the reality of the situation: that can be a risky move.

The IRS examiner is trained to review your return with an eye toward finding additional tax due. Tax law is full of gray areas, and if you do not know how to push back on a weak IRS position, you can end up agreeing to changes you should have challenged. That is why representation matters. You want someone who understands the rules, knows how audits work, and can stand between you and the IRS.

Why does the IRS select returns for examination?

You might be thinking, “Why did they pick my return?” In a lot of cases, it comes down to mismatches, patterns, or issues that the IRS systems are trained to flag.

1. Unreported income

Here is how it works: when you get a W-2, 1099, or other income form, the IRS gets a copy too. They compare what was reported to them against what showed up on your tax return. If the numbers do not line up, that can trigger a notice, a bill, or a deeper examination.

2. Worker classification issues

The IRS also looks closely at whether workers were properly classified. If a business treats someone as an independent contractor when the IRS believes that person should have been treated as an employee, that can trigger an employment audit.

3. Schedule C red flags

If you file a Schedule C for sole proprietorship income, you already know this part of the return tends to get more attention. That does not mean you did anything wrong. It just means the IRS sees more opportunity for errors in this area.

Common issues include:

• Unreported cash income. The IRS may compare deposits, review bank records, or look at whether your business numbers seem out of line with similar businesses.
• Ongoing losses. If your business reports significant losses year after year, the IRS may question whether it is really being operated for profit.
• Bartering. If you trade products or services, the value of what you received may still count as taxable business income.

What does an audit actually look like?

Not every audit happens the same way. Some are handled entirely by mail. Others require an in-person meeting at an IRS office or at your home, business, or representative’s office.

Examination by mail

Sometimes the IRS starts with a letter asking you to explain or correct a specific issue.

• CP 2057: This usually means the IRS believes there may be an income discrepancy and wants you to review the return and amend it if needed.
• CP 2000: This notice proposes changes based on information the IRS received from third parties, such as W-2s or 1099s, that they think you did not report correctly.

If you receive a CP 2000 notice, your options generally are:

• Agree with all of the proposed changes.
• Agree with part of the changes.
• Dispute all of the proposed changes.

You can also authorize someone else to represent you in responding to that notice. In many cases, the authorization paperwork is built right into the notice itself.

Field or office audit

In an in-person audit, the revenue agent will usually send a letter and ask you to call to schedule the first meeting. That meeting should take place at a reasonable time and place that works for both sides. You also have the right to be represented by a tax professional.

And one thing I always tell clients: stay calm and professional. Even offhand comments or jokes can be taken the wrong way. This is not the time to vent to the examiner.

How to prepare before the audit starts

The best audit preparation starts before you ever sit down with the IRS. I like to approach this by asking: If I were the auditor, where would I press? That mindset helps you spot weak areas early and get your documentation in order.

Here is what I want you to focus on:

• Organize your records by year and category. Income, deductions, and credits should all be easy to trace.
• Be ready to support anything unusual. If a deduction is larger than normal, make sure you have solid backup.
• Review the return before the audit. You do not want surprises during the meeting.
• Think through the tough questions first. If something looks questionable, address it before the IRS does.

What happens when the audit ends?

There are a few ways an audit can wrap up.

No-change letter

If the IRS accepts the return as filed, they will issue a no-change letter. That means no additional tax is assessed and no further action is required on that issue.

30-day letter

If you and the IRS do not agree, you may receive a 30-day letter. This gives you the chance to agree, protest the findings, or appeal the result.

90-day letter

If you do not respond to the 30-day letter, the IRS can issue a statutory Notice of Deficiency, often called a 90-day letter. At that point, you generally have 90 days to file a petition with the Tax Court or pay the tax and pursue a refund claim.

What if the IRS is examining the same issue again?

If the same items were already examined in one of the prior two years and the IRS did not propose any change, that matters. In many cases, the repeat examination can be challenged and may be discontinued. That is one more reason it helps to have someone who understands the procedural side of an audit, not just the numbers.

You do have appeal rights

If you disagree with the examiner’s conclusions, you are not stuck with that result. Depending on the situation, your options may include:

• Requesting a meeting with the examiner’s supervisor
• Using IRS mediation services
• Appealing to the local IRS Appeals Office

The main thing is not to freeze up. There is usually a path forward, even if the first result is not the one you wanted.

Final thoughts

An IRS audit can feel invasive, stressful, and personal. I get it. But in most cases, it is a process problem before it is anything else. The IRS wants documentation, explanations, and clean support for what you reported. If you respond clearly and strategically, the situation becomes a lot more manageable.

You do not need to panic, but you also do not want to ignore it or guess your way through it. The right response can make a major difference in how the audit plays out.

Need help with an audit?

Going through an audit is stressful, and that is completely normal. My role is to stand between you and the IRS, protect your rights, and help you respond the right way from the start. If you want help reviewing a notice or preparing for an examination, call 303-881-9762 .