Don’t wait until the IRS audits your return to start collecting and organizing your financial records. Keeping track of documents such as receipts and payroll reports can mean the difference between sufficiently substantiating your claims and having to pay hefty fines.
The IRS is going to request different documents for different situations. For example, if you’re running a small business and you deduct your travel expenses claiming they’re business-related, the IRS is going to want to see a mileage log and receipts for gas and lodging. You will also have to provide some proof that the travel was business-related. If you vacation in Cancun and write it off as a business expense, that’s called fraud. If you have the documents to show that your trip was to meet with a client, however, this would be a legitimate deduction.
The Information Document Request
For any taxpayer unlucky enough to be audited, it will be impossible for them to know what documents the IRS wants to see until they receive an Information Document Request (IDR) in the mail. The IDR, also known as IRS Form 4565, usually arrives with an audit appointment letter that details what steps need to be taken.
The IDR itself is a list of specific documents the taxpayer must gather in order to substantiate questionable items on their tax return. The number of IDRs sent to the taxpayer depends on the type of audit and its complexity. Sometimes, the IRS only needs to verify one item and can settle the audit after one IDR. In more complex cases, you may have to gather a variety of documents from an initial IDR, meet with the IRS in person, then receive more IDRs to support what was discussed at the meeting.
The Information Document Request will list out all specific documents you must deliver to the IRS for examination. The documents vary on a case-to-case basis, but frequently requested items include:
- General ledger
- Copies of loans, leases and material contracts
- Cash disbursements journal
- Accounts payable ledger
- Trial balance
- Financial statements
- IRS Forms 940, 941 or 944, 945
- Forms W-2
- IRS Form 1099
- Collective bargaining contracts with employees
- Loan statements
- Bank statements
- Cancelled checks
- Listing and invoices for fixed asset purchases
- Payroll reports
Once you finish reading your IDR, you should begin gathering the requested documents as soon as possible. Be sure to make copies and to never send in the original copy. If you can’t find a specific document, get in contact with whoever originally issued the document immediately and request a duplicate. The IRS doesn’t accept missing documents as an excuse. Do not ever send the IRS more information than they asked for, this will only come back to haunt you if the IRS finds another mistake.
If you are being audited, you don’t have to go at it alone. The Law Offices of Jef Henninger work aggressively to assure our clients the best possible outcome from their audits.