Receiving notice that your income tax return has been selected for audit is never a comfortable scenario – for you or your accountant. However, in most cases, an accountant should be willing to work with you to ensure records used to prepare your return are in order and to help you gather any additional documents you’ll need to prove items listed on your return. The IRS does not require accountants to pay any taxes due as a result of additional assessments made as a result of the audit, so it is important you’re prepared to discuss any questions the auditor has for you regarding your return.
Ultimately, you are responsible for all items reported on your tax return, even when you do not prepare your return. It is important that you review your return and understand how your accountant arrived at the entries before you sign the return and submit it. Your accountant uses information you provide to prepare your taxes and in the event something is forgotten, a review may uncover these issues before the return is filed. If your return is submitted with an error caused by your accountant’s own negligence, the IRS may waive penalties associated with any extra tax due, but you will still be responsible for paying the principal taxes due as a result of the error.
At an audit, you have the right to representation. If your accountant is a CPA, IRS enrolled agent or attorney, the IRS will allow your accountant to represent you at the audit. A representative can ensure your taxpayer rights are protected during the exam, and can also review any proposed tax assessments from the IRS to ensure calculations are correct and the assessments are appropriate. Even if your accountant is not a CPA, enrolled agent or attorney, your accountant will still be able to answer questions the IRS has concerning the preparation of your return, but he will not be able to negotiate any other outcomes of your audit.
Some tax preparers and tax preparation companies offer audit protection when your returns are prepared through their services. However, many companies offering this protection require you to purchase it prior to an audit being initiated by the IRS. Companies that offer audit protection generally cover any penalties and interest that accrue as a result of an error caused by the tax return preparer and discovered through the audit. If you are concerned about a potential audit, ask your tax preparer if it offers audit protection and see what it covers.
In the event you owe extra tax after your audit is finished, the IRS may request full payment of your balance due. However, you have options available to you through the IRS and can’t be forced to pay the balance in full when your bill is presented. The IRS offers installment payment plans that allow you to make monthly payments toward your debt. If you have insufficient disposable monthly income or equity in assets, you may also qualify to settle your debt through the IRS Offer in Compromise program. Finally, if your monthly bills exceed your monthly income, you may qualify for non-collectible status with the IRS. In this status, you’ll still have a tax balance, but the IRS can’t request payment from you or take alternative collection measures against you. If you disagree with the results of your audit, you also have the right to request a review with your manager’s audit, or to appeal the results of the audit to the IRS Appeals Office.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.