You must also decide whether to seek out an accountant or tax attorney to represent you. An accountant may suffice to convince an auditor of your return’s veracity early in the audit process, before problems occur. But you should also consider hiring a tax attorney if the transactions in question appear to have either a questionable legal precedent or an unduly contentious nature.

After you pick your representative, you must file an executed power of attorney (POA) with the auditing agency for the tax years and entities under review. This gives your representative the authority to act legally on your behalf regarding all matters stated in the POA. Be certain that the scope of the POA is sufficient to enable the representative to act on your behalf for those matters in the audit, but is not unnecessarily broad.

Keeping Secrets Secret
When you have established a professional, fiduciary relationship, you must be completely honest with your representative concerning how your tax returns were prepared and any omissions that may have been made. To facilitate free-flowing communication between you and your representative, the IRS offers confidentiality privileges for communications between taxpayers and federally authorized tax practitioners (in noncriminal matters). A taxpayer should take immediate advantage of this privilege when faced with an audit to ensure the most favorable outcome possible.

Taxpayers do have rights, and sometimes must take this ultimate recourse to halt IRS fishing expeditions.

Your representative’s next step will be to review all communications received from the taxing authority in order to determine the initial scope of the audit. The tax advisor will also need to evaluate the tax returns filed and all of the supporting documents for the issues under examination. If there were nonfiled returns and/or omissions on filed returns, the representative will need to assess all documentation relating to these in order to present your information properly and successfully.

After completing these reviews, your representative will craft a plan for moving forward, specific to the scope of the audit and the facts presented. The advisor will contact and communicate with the auditor and begin the process of responding to the auditor’s requests. This method involves sharing information and negotiating with the IRS to resolve any issues that may arise during the course of the review.

The IRS does not require taxpayers to appear for audits. In fact, taxpayers typically do not appear. If your representative cannot answer certain questions, he will request that they be made in writing and responded to accordingly. This process helps reduce the chance of miscommunications or misunderstandings. During the audit process, the taxpayer only needs to provide the taxing authority with information needed to substantiate the income, deductions and/or tax position taken on a return. Occasionally, the government requests information that appears to be irrelevant, such as customer lists. If your representative cannot convince the taxing authority to retract these requests, he may have to seek an injunction to quash these demands in order to protect your confidentiality. Taxpayers do have rights, and sometimes must take this ultimate recourse to halt IRS fishing expeditions.