How to Survive a Tax Audit

I’ve been audited three times and have not only survived my tax audit each time, but have actually used them to get additional tax refunds. Here’s how you can, not just survive, but thrive, if you are lucky enough to be subject to a tax audit.

You may have heard recently, if you follow any sales or marketing gurus about the the concept of “over-delivering” to your customers.

“Over-delivering” is the concept of providing, not what you bargained for, but that plus a whole lot more. Your customers,who may have still had some reservations about dealing with you, are overwhelmed by your “over-delivery,” and you’ll not only not have to worry about them canceling their order and asking for a refund, you’ll have a customer for life (and a great source of referrals).

Well, you can use the concept of “over-delivering” when you have a tax audit. Remember that most people aren’t eager to undergo a tax audit. Often they’re rude to the auditor. The auditor may find it difficult to get information from them.

Do the opposite. Over-deliver. Here’s how.

The last time I was notified I was up for an audit I got back to the auditor right away. I set up an appointment for a few days hence, and got to work. First, I contacted my accountant, and got him to provide me with a printout of my business’s account summaries in an easy to read format (if you do your own taxes, just print out your summaries using Quicktax, or whatever you use).

Then I got together all the supporting documentation and assembled it together in labeled folders. I put together everything from receipts, to invoices, to mileage logs, and appointment books. Then I went back and assembled these for the years prior.

Next, I cleared off a desk in an unused office and put everything in neat piles on the desk. There were stacks of records, printouts, appointment books – everything you could imagine relating to my business activities. Some of these materials the auditor had indicated he wished to see, but there was a lot more than just the minimum, I had assembled everything he could conceivably want to look at. I had over-delivered.

On the morning of the appointment the auditor showed up, and I ushered him into the office and explained what the materials were. I asked him to contact me if he needed anything else (I said it with a straight face), got him some coffee, and left him to his work.

He was finished by lunchtime, and assessed a small penalty for some oversight or other (less than two hundred dollars). He was apologetic. He then went on to point out deductions that, in his opinion, I could be making but wasn’t. I grabbed a pen and pad, and started writing his suggestions down.

We got talking and I asked him about other deductions I might be taking, or other ways in which I could be saving money on my taxes. He gave me a number of tips.

The direct result of my tax audit was, even after deducting the modest penalty, an amended return in which I received a four figure tax refund. Plus, by implementing the auditor’s suggestions on my current and future tax returns, I’m saving even more. I’d guess the value of this tax audit to me will turn out to be somewhere between $25,000 and $35,000. And, naturally, that’s after-tax money. It’s like earning nearly twice that amount.

So, when you’re faced with a tax audit, over-deliver. You’ll not only survive the audit, but you may find that you put extra money in your pocket for the audited year, and in tax years to come.