Financial Planning Exercise 7 Preparing for a tax audit Timothy and Michelle Morrison have been notified that they are being audited. What should they do to prepare for the audit? A. They should not take any action until more specific requests are received. The IRS can independently verify the accuracy of information recieved from taxpayers, and only if errors are found, Timothy and Michelle will be involved. B. Timothy and Michelle should hire an independent expert to check and correct if necessary their records and documents, but they should keep it secret from the IRS that someone helped them with the paperwork. C. Timothy and Michelle should gather their records and supporting documents. If they hired a professional tax return preparer, that preparer should be contacted and may be asked to accompany them to the IRS. D. Timothy and Michelle should file an appeal with the help of a lawyer to have the audit invalidated and overturned. If the decision to conduct an audit remains in force, they should prepare for the likely fines that audits usually result in. -Select-v

To prepare for a tax audit, Timothy and Michelle Morrison should take proactive steps to ensure they are ready and organized. Let's evaluate the options provided: A. **They should not take any action until more specific requests are received.** - This option is not advisable. Ignoring the situation could lead to complications, as the IRS may require specific documentation and information. B. **Timothy and Michelle should hire an independent expert to check and correct if necessary their records and documents, but they should keep it secret from the IRS that someone helped them with the paperwork.** - While hiring an expert can be beneficial, keeping it a secret is not a good practice. Transparency is important in dealings with the IRS. C. **Timothy and Michelle should gather their records and supporting documents. If they hired a professional tax return preparer, that preparer should be contacted and may be asked to accompany them to the IRS.** - This is the most appropriate course of action. Gathering records and involving a professional who is familiar with their tax situation can help ensure they are well-prepared for the audit. D. **Timothy and Michelle should file an appeal with the help of a lawyer to have the audit invalidated and overturned. If the decision to conduct an audit remains in force, they should prepare for the likely fines that audits usually result in.** - Filing an appeal may not be necessary unless there is a valid reason to contest the audit. Preparing for fines without understanding the audit process is premature. Based on the analysis, the best option for Timothy and Michelle Morrison is: **C. Timothy and Michelle should gather their records and supporting documents. If they hired a professional tax return preparer, that preparer should be contacted and may be asked to accompany them to the IRS.**