The Auditors wants you to consent to their findings and not appeal or go to Tax Court. This gives you negotiating power. This means the auditor wants your signature so badly she will allow bogus business expenses or overlook unreported income.
Here is one negotiating strategy.
DO NOT JUST SIT THERE: Keep asking the auditor about disallowances she is considering as the audit progresses or they won’t tell you what’s on their mind so you can be in the dark until you get the examination report.
Don’t let an auditor take the easy way out – make her face and justify her actions. In turn, you can argue your position right there and then. If she plans to make an adjustment because you didn’t produce records, you can ask for time to find or reconstruct the documents.
For Example: The IRS Auditors tells Joseph an SEO consultant, that he is disallowing his deductions for the theft of his computer. Joseph’s reason is that there is no documentation for the loss. John should instead get a police report for the Auditor.
NOTE: Keep in mind, the difference between arguing and negotiating. Negotiating is the art of meeting in the middle. For example: Let’s say you lost all your paperwork for a $600 office supply deduction. The auditor proposes to disallow 100% of the deduction.
You can negotiate like “Since I made a profit and maintained an office, I must have bought office supplies. I lost my receipts, but my reconstruction of expenses is reasonable. I should be allowed at least 50%."
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