Answers to frequently asked questions about a taxpayer's worst nightmare: the audit.

What's Below:

What are my chances of getting through an audit without owing additional taxes?
I am being audited and the deadline for filing this year's return is fast approaching. Should I file?
I am being audited and I haven't heard from the auditor for months. What can I do to get the audit over with?
Do I have to let the IRS into my home?
What should I do if I encounter a dishonest IRS employee?
The auditor is impossible to get along with. What can I do?
Can the IRS take my house?
Can I make a deal with the IRS to pay less than my tax bill?
Can I challenge the IRS if I get audited and don't agree with the result?
I have always deducted a certain expense. During a recent audit, the deduction was denied and now I know I was wrong all those other years. What should I do?
How likely am I to get in trouble for tax fraud?

What are my chances of getting through an audit without owing additional taxes?

Fewer than 25% of audit victims make a clean getaway. The IRS audits half as many taxpayers today as five years ago, but the take per audit has increased. The IRS, thanks to its sophisticated computer selection process, audits only those returns in which adjustments are almost a certainty. Realize the odds are against you and focus on limiting the damage from an audit. For some guidance, see Top 20 Tips for Surviving an Audit.

I am being audited and the deadline for filing this year's return is fast approaching. Should I file?

Not if you can help it. The danger in filing is that the new return is fair game for the auditor, and she may get permission from her manager to expand the audit to include that return.

Instead of filing, file for an automatic extension until August 15. To do this, get IRS Form 4868, Application for Automatic Extension of Time, and send it to the IRS by April 15. But be sure to pay all taxes due on April 15. If the audit is still going on in August, request a second extension by filing IRS Form 2688, Application for Additional Extension of Time, by August 15. If the second extension is granted, you will have until October 15 to file your return.

If the audit is still alive on October 15, don't file until the audit is completed. As long as you have paid all the taxes due and have no fraudulent intent, you won't incur any penalties or interest for not meeting the deadline. If you owe additional money, send in your payment with a letter stating that the payment is to be applied to the unfiled tax year. The auditor can't make you file your return; if she asks you about it, simply say, "I am not yet ready to file."

I am being audited and I haven't heard from the auditor for months. What can I do to get the audit over with?

Why do anything? IRS auditors are instructed to close audits within 28 months of the date you filed your tax return or the date it was due (April 15), whichever is later. For example, if you filed your 2004 return on April 15, 2005, the IRS wants the audit completed by August 15, 2007. Legally, the IRS has an additional eight months (until April 14, 2008), but auditors are instructed to complete the audit with at least eight months to spare so the IRS has time to process any appeals.

If you haven't heard from the auditor, it could mean a number of things. The auditor may have been transferred or terminated. Or your file may be sitting in a pile awaiting processing somewhere in the IRS. When your file resurfaces, a new auditor is under a deadline to close it, which can work in your favor. And, in the best of all worlds, the time limit for completing the audit may expire while your file is in IRS never-never land. So leave the sleeping dog alone.

Do I have to let the IRS into my home?

No. An IRS employee may not enter your home without an express invitation from you or another rightful occupant. The only exception is if the IRS has a court order, which is very rare. A field auditor may ask to come in to verify your home office deduction, but you don't have to let him in. Of course, if you don't, he'll no doubt disallow the deduction. Your choice.