How do I handle getting audited by the IRS?

Ralph Estep Jr.:
00:00

Have you ever opened up your mailbox to find that dreaded letter from the IRS? The one that says you're being audited. If so, you're not alone. Today, We're tackling this nerve-wracking topic head on. So stick around to learn, not just how to survive an IRS audit. But how to navigate it with confidence, knowing your rights and the steps to take. Plus I'll share a personal story that might just surprise you.

Ralph Estep Jr.:
00:27

But before we dive in, let's take a quick look back at yesterday’s show. Yesterday, we explored seven perks of maintaining great credit, and boy were there some eye-openers. If you missed it, be sure to check it out on our website. That's at askralph.com. Well, now let's get to today's hot topic. I received a frantic message from Jessica in Jacksonville, Florida.

Jessica:
01:01

Ralph, I just received a notice that I'm being audited by the IRS, and I'm freaking out. What should I do? What should I avoid doing? And do I have any rights in this situation? It feels like I can't even breathe right now, and I know I'm not getting any sleep for a few nights. I hear about people being audited and even going to jail over these tax issues. What do I do, Ralph?

Ralph Estep Jr.:
01:29

Jessica, first of all, take a deep breath. I know this is scary, but we're going to walk through this together and I promise you, by the end of this episode, you'll feel much more prepared to handle this situation. Now, before we dive in, I want to welcome all of our listeners, both new and returning. Thank you for tuning into The Ask Ralph Show your trust and support. They mean the world to me. And I'm honored to be your guide on this journey of financial stewardship.

Ralph Estep Jr.:
01:58

As we tackle this challenging topic, let's ground ourselves in God's word. Proverbs 3:5-6 tells us this: “Trust in the Lord with all your heart and lean not on your own understanding. In all your ways submit to him, and he will make your paths straight.” That's a good one. This verse reminds us that even in the face of financial challenges, we can find peace and guidance in our faith. So let's apply this wisdom tour topic today.

Ralph Estep Jr.:
02:32

All right. Let's dive into the main content. Jessica and all of our listeners out there, here's what you need to know about handling an IRS audit. When you receive that audit notice, here are the first things you should do. First. Number one: Don't panic. Remember an audit doesn't automatically mean you've done something wrong. It's often just a routine check. You're not immediately going to jail. Trust me on this. Sometimes it's just something that is crossed in the mail or something like that.

Ralph Estep Jr.:
02:59

Second: You got to read the notice carefully. The IRS will specify what they're examining and what information they need from you. These notices have been improved over the recent years. And for the most part, they do lay out the issues and direct you on what they want you to do.

Ralph Estep Jr.:
03:14

Third, and this one is really important: Check the deadline on the notice. Know when they want you to respond and mark it on your calendar. This is critical. Don't ignore the notice or pretend like it's going to go away. It's not going to go away if you hide it in the junk drawer.

Ralph Estep Jr.:
03:29

Fourth: Gather your documents. This is the time to start collecting all your relevant financial records for the tax year in question. As an aside, technically at the time you file your return, you're supposed to have all these documents ready to go, so the IRS doesn't need to give you a ton of time to assemble these records. Many people don't understand that. You should have all of your receipts assembled before you even file your tax return.

Ralph Estep Jr.:
03:53

Fifth: Consider professional help. If your tax situation is complex, it might be worth hiring a professional or an attorney to represent you. Listen. If you're being audited, I highly recommend enlisting the support of a professional. You can certainly schedule a consultation with me. Just head over to askralphpodcast.com/store and you can schedule with me, and we'll work together on getting this issue resolved.

Ralph Estep Jr.:
04:19

Now let's talk about what not to do. We talked about what to do, but let's talk about what not to do. First thing is don't ignore the notice, this will only make things worse. It amazes me how many clients I get who wait until the IRS has sent them that final lien notice before finally reaching out to get help. There are deadlines which the IRS has to follow and you have to meet them as well. Just burying your head in the sand is not the answer and it will never get you the results you want. It will land you in deeper hot water with the IRS and may result in liens on your property, wage attachments, and if you're not really careful, maybe even criminal prosecution.

Ralph Estep Jr.:
04:59

Now here's another thing not to do: Don't rush to call the IRS immediately. This is a time to take time to review your records. You have to dot your i's and cross your t's and completely understand the issue and have your records ready for an appropriate response, which leads me to the next thing and that's: Don't volunteer additional information.

Ralph Estep Jr.:
05:19

This is a time to stick to answering only what they've asked you. Reminds me of those TV shows and movies where you hear the attorney telling their client. Now, listen, just answer the question. It's easy in these emotional situations to start volunteering information, which was not even asked, but that's a bad plan. I don't know how many times I've seen clients get themselves in higher and higher penalties by providing more information than they needed during an audit.

Ralph Estep Jr.:
05:44

Another thing not to do: Don't lie or fabricate documents. When it comes to the IRS, honesty is always the best policy. I talk about this all the time on the show. This is a character issue and as I discussed last week, don't ever put yourself in a place where you're being dishonest with the IRS. This will quickly raise the bar to criminal prosecution.

Ralph Estep Jr.:
06:06

And the final thing: Don't miss deadlines. If you need more time, ask for an extension in writing. The truth is, generally the IRS will work with you, but as I've said, you're supposed to have your records in order before you even file so don't expect them to give you months and months or years to get those records ready. You need to have them ready right away. So as Jessica asked, “What are my rights?” Now, this is crucial. Many people don't realize that as a taxpayer, you do in fact have rights. The IRS has what's called a taxpayer bill of rights and knowing these can help you navigate the audit process with confidence.

Ralph Estep Jr.:
06:42

So let's talk about those 10 fundamental rights. Number one: You have the right to be informed. Number two:

You have the right to quality service. Number three: You have the right to pay no more than the correct amount of tax. Number four: You have the right to challenge the IRS's position and you have the right to be heard. Number five: You have the right to appeal an IRS decision in an independent forum. Number six: You have the right to finality of the issue. Number seven: You have the right to privacy. Number eight: You have the right to confidentiality. Number nine: —There's a lot of rights, aren't there? —You have the right to retain representation and number 10: You have the right to a fair and just tax system.

Ralph Estep Jr.:
07:30

Now I'm not going to break all those down but let me drill down a few of them for you. The right to be informed. This means that the IRS must explain why they're auditing you and what they need from you in a clear, easy to understand language. The right to challenge the IRS' position and be heard is particularly important. If you disagree with the auditor's findings, you have the right to present your case and provide additional documentation. They have a whole thing for appeals and all that sort of thing. You have the right to retain representation. This means you can hire an attorney, a public accountant, or an enrolled agent to represent you in dealings with the IRS.

Ralph Estep Jr.:
08:04

This is something I highly recommend and something that anyone being audit should do. You don't have to do this on your own. In the end, understanding these rights can help you feel more empowered during the audit process. Now I promised you a personal story and here it is: A few years back, I received an audit notice from the IRS myself. My heart sank, and I felt the same panic that Jessica's experiencing now. And think about it, I do this for a living.

Ralph Estep Jr.:
08:28

But here's what happened: I took a deep breath. I gathered my documents and approached the situation calmly. I reviewed the notice. I reviewed my records and provided the specific information they requested when they asked me to do it. And to my surprise, the audit revealed that I had actually overpaid my taxes that year. The IRS ended up sending me a refund. I'm not saying this will happen for everyone, but it goes to show that an audit isn't always bad news.

Ralph Estep Jr.:
08:55

So the key takeaway from my experience is this stay calm, be prepared. I had my records in order, and don't be afraid to seek professional help if you need it. So let's recap what we've covered today. We talked about the immediate steps to take. When you receive an audit notice. We discussed the things to avoid during the audit process and we explored your rights as a taxpayer, including the taxpayers bill of rights. Remember this: knowledge is power. The more you understand about the audit process and your rights the better equipped you'll be to handle it.

Ralph Estep Jr.:
09:26

Now let's talk about some actionable steps you can take. Even if you're not currently being audited, these are things which you can prevent an audit altogether. And I've talked about these before, but we're going to repeat them today. First of all, it's imperative: Keep good records. Organize your financial documents and keep them for at least three to seven years. I've done many shows about that, depending on the type of record that it has. Secondly, be honest on your tax returns. This is not the time to be tempted to fudge numbers or claim deductions you're not entitled to. Doing that will only come back to bite you in the end.

Ralph Estep Jr.:
09:59

Thirdly, if you're unsure about something on your tax return, consult a professional. It's better to pay for advice now than to face problems later. Many of my clients have said to me, “Ralph, I pay you so I don't have to worry about it.” Fourth, educate yourself about tax laws. You don't have to be an expert, but you should know the tax laws that are relevant to your particular situation. And fifth, if you do get audited, remember your rights and don't be afraid to stand up for yourself respectfully.

Ralph Estep Jr.:
10:30

So here's a favor I want to ask you: If you found this information helpful, I encourage you to visit our website. That's at askralph.com. There, you can join our community and get access to even more resources to help you on your financial journey. And here's something exciting. When you join our email list, you'll get a free copy of my book, “Mastering Your Finances.” Now, this book normally sells for 10 bucks on Amazon, but it's yours absolutely free when you join our community. And don't forget to share this episode with friends or family members who might benefit from this information. Remember, we're all in this together, and sharing knowledge is one of the best ways we can support each other.

Ralph Estep Jr.:
11:04

Now, tomorrow we'll be diving into a fascinating topic and it's “How can we use financial fasting to grow closer to God?” It's a unique approach to both financial discipline and spiritual growth so you won't want to miss it. As we wrap up today's episode, I'll remind you all to keep sending in your questions. The Ask Ralph Show is all about answering your real-life financial queries, so don't be shy. Your question could be featured in one of our future episodes. Remember, when it comes to your finances, you're not alone. God is with you and so is this community we're building together. So as I always say, stay financially savvy. And God bless you abundantly.