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What triggers an audit and how to survive it

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Everybody goes through an audit at some point in their lives. It’s not a matter of time; it’s a matter of when. So, can you minimize your risk of being audited? Do you have what it takes to survive an audit? I will show you the process from the auditor’s standpoint, how they work, and what you need to survive and come out unscathed.

Audits are rarely random. And audit must be triggered by something different, inconsistent or abnormal on your return. Every year is compared with the last, and if there is an odd number that seems too high or too low, they will simply want to see the backup information.

When an auditor sends you a letter with the date of their arrival, you must use your precious time to find your information and get it organized. Treat the auditor with respect, as they may find reasons to give you money versus find reasons to take your money. They are only there to prove the information is correct. They have no personal interest in whether they find a discrepancy or not.

Things to do to prepare yourself for audit:

•      Have a copy of your return of the year being audited
•      Gather receipts that total the reported sums of your tax return (ie: W-2 or T4 for employment income; equipment receipts, rent receipts, fuel receipts, etc)
•      Have your vehicle logbook completed to match reported mileage
•      Have papers paper clipped – not stapled -  and arranged in the order found on the return
•      Have your capital cost allowance /depreciation schedule prepared
•      Get your appointment book out to show that you did in fact have those appointments
•      Invoices should total the same as reported
•      Medication and medical claims should match the reported figures

Rest easy. An audit does not have to be difficult. If you are prepared and have the necessary documentation, things will go quickly and smoothly – and you may just come out on top!

I am a tax professional, and this article is representative of the prevailing regulations in Canada at the time this article was published.  While I am a professional, you are not my client, and so this should not be considered professional advice. Remember, though, that these rules can vary widely by jurisdiction, and that from year to year tax rules can change.  Therefore, you should always research whether or not you are eligible for these or other deductions/credits.  When in doubt, consult a local tax professional.
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Author Comment

by:Nancy McCullough
I am an auditor. Yes - that is all there is to it. It is nowhere near as big a deal as most people think.
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Expert Comment

by:DanRollins
I presume that you mean a "tax audit" as oppose to some other type of audit.

The Tax Auditor wants, above all else, to "close the case" -- to meet her quota and move on to the next case.  She has no desire to prolong your agony.

A couple of tip/tricks:
 
Try to set your appointment in the late morning time slot.  If nothing pops out right away, the Auditor will want to stamp DONE on the file and go to lunch.
(impractical, but interesting) Make a small, obvious arithmetic mistake in an early part of the return... The Auditor will want to make that $100 adjustment and close the file.  You write the small check, smile, and go home.
The Auditor will not normally look at previous returns, but must act when there is a reason to do so.  When an error is found, Never, EVER say "But that's how we've always done it!" :-)  
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