What happens if the IRS is auditing me?

I strongly suggest to you to hire a tax attorney to help you with the Audit. You or your attorney can request for a copy of your file from the IRS, including copies of your tax returns.

What happens when IRS audits you? IRS usually opines you owe more money, does an audit, and begins the legal process of assessing you additional income tax, penalty, and interest expense, by certified mailed Notice of Deficiency. You have 90 days from the Notice of Deficiency date to file a petition in United States Tax Court, and if you do not do so you owe IRS the money alleged to be owed in the Notice of Deficiency. It is a huge mistake to represent yourself. IRS revenue agents (auditors) are skilled in creating an audit case file against you in case you later appeal or file a Tax Court petition after the audit concludes by Notice of Deficiency. Taxpayers that self represent during the audit usually do far worse in Tax Court litigation resulting from IRS' eventual Notice of Deficiency. Federal law allows you to be lawyer represented, and you should be lawyer represented where you never speak to an IRS employee. I force IRS to submit to in person audio recorded conferences for a variety of reasons. Generally, if audit issues on your 2007 income tax return relate to prior years you are required to prove all your 2007 return positions, which may include providing copies of prior years' returns not being audited. However, you must use caution because if you provide IRS prior year returns that IRS thinks were fraudulent, then IRS can audit those prior years too because the statute of limitations to allege a Notice of Deficiency for fraud is unlimited. Otherwise, the basic rule is IRS can issue a Notice of Deficiency within 3 years of the return filing date, or within 6 years if gross income was understated by more than 25%. As to any questions or documents IRS requests, if they are irrelevant to your 2007 return then you could refuse to provide such answers/documents on that basis irrelevancy. IRS might retaliate with a higher Notice of Deficiency alleged liability, but you would have the opportunity to challenge it within 90 days from the Notice of Deficiency date by filing in United States Tax Court your petition. If you don't have the documents that IRS is asking for, so inform IRS. You or your hired lawyer should immediately file a Freedom of Information Act request forcing IRS to now turn over to you or to your lawyer, copies of all papers in IRS' audit case file, to ascertain how bad your audit is or is not to date. If you signed an IRS form 872 consenting to extend the three year statute of limitations for assessment for 2007, that was a mistake in my opinion. Your best course of action is to consult with and hire a competent tax lawyer who routinely does income tax litigation work. Generally, most Tax Court cases settle without a trial, and usually you get a better deal that what IRS' Examination will come up with.