'Crazy, psycho downward spiral' of Austin tax protester revealed in FBI documents
Last week at my other tax blog: Ticket tax refunds on, then off; State tax holidays

If IRS asks, you got some 'splaining to do

The wonderful comedienne Lucille Ball was born on this day, Aug. 6, 1911. To celebrate, Google's home page today is a vintage television set that plays clips (just "turn" the channel knob) from her classic I Love Lucy television program.

Ball and her then-husband Desi Arnaz were ground breakers in the TV industry, both on the technical and comedy fronts.

One of the greatest compliments the hubby ever paid me was the time after listening to a convoluted and, yes, ill-advised scheme (I can't even remember for what now), he shook his head, sighed and said, "I married Lucy."

Lucy and Ricky
Google doodle honoring Lucille Ball's 100th birthday.

If I had implemented my plan, the hubby no doubt would have then uttered one of I Love Lucy's most famous lines, one that has become a part of the popular vernacular and is known by even those who've never seen the show:

You've got some 'splaining to do.

Explaining your taxes to the IRS: That's also what you'll have to do if the Internal Revenue Service questions your tax return.

Remember, the burden of proof when it comes to an IRS audit is on you.

The IRS examiner starts from the premise that your claims are wrong. Unless you can prove otherwise, then your claims for such things as a dependent and any related tax breaks, business expense write-offs and charitable deductions will be disallowed.

To prevent that, you need clear and convincing proof. That means documentation.

A receipt is your best defense. Make sure it has all the relevant details -- such as type of expense or donation, when, where, who else was involved, for example, attendees at a business meeting -- or add that information yourself directly on the receipt. Without adequate records, the IRS can estimate your income and/or expenses, usually not in your tax favor.

Such documentation goes a long way toward showing that you prepared your return carefully. It should help you get through the audit process quickly and with no or minimal damage to your tax bottom line.

In addition to getting all your complete tax records together, here are some other things to keep in mind if you ever have to prepare for an IRS audit.

Don't ignore the audit notice.
You generally have 30 days to respond to an audit notice. If you miss the deadline, the IRS can automatically adjust your tax liability. That means the next time you hear from the IRS it will be in the form or a bill.

Also follow the instructions in the audit notice. It will have specific information about the areas under IRS review.

Get professional help.
If a tax preparer filed the return under question, contact that person as soon as you get the notice. If you didn't or don't now use a tax professional, hire one now. The fee will probably be worth it in not only in producing a better post-audit financial result, but also in giving you some peace of mind during this trying time.

An Enrolled Agent, tax attorney or CPA may represent you at an audit. More importantly, they are trained in tax law and experienced in dealing with the IRS and its sometimes (OK, often) arcane rules and processes.

Examine the examiner.
The IRS has created audit technique guides that its examiners use. The documents cover return examination techniques, common and unique industry issues, business practices, industry terminology and other information to assist auditors. But you can use them, too, to get an idea of what the IRS auditor will be looking at and for and what questions are likely to be asked.

Be professional.
You've hired a tax professional to help you through the audit, but you need to be professional, too. The auditor is just doing his or her job, so don't go into the process with a combative attitude.

Neither should you go to the other extreme. Regardless of how nice the IRS examiner might be, the auditor is not your friend. So don't get all chatty or feel compelled to volunteer information. Leave the talking to your tax pro and answer questions under his or her direction.

Don't panic.
Yes, an audit is nerve wracking. But don't make it worse by worrying needlessly. If your claims are legitimate and you have the records to back them up, then you should be OK.

And your audit can serve as a learning experience to help ensure that you never go through the process ever again.

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