What to Do If You Are Audited By the IRS
For the average taxpayer, the chances of being audited by the Internal Revenue Service are not very high; however, if you receive an audit letter from the IRS, it should be taken very seriously. Below are the basics of IRS audits and some tips to prepare for them.
What is an IRS audit?According to the IRS, an audit is “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is substantially correct.” When the IRS selects a return for audit, it does not always mean an error has been made on the return. The IRS selects returns using a variety of methods including: 1) random selection; 2) computer screening--returns are selected based a statistical formula; 3) document matching--when payer records, such as W-2s or 1099s, don’t match other information reported; and 4) related examinations – when returns involve issues or transactions relating to other taxpayers, such as business partners or investors, whose returns were selected for audit.
What happens during an IRS audit?An audit may be conducted by mail or through an in-person interview and review of your records. The interview may be at an IRS office (i.e. an “office audit”) or at your home, place of business, or tax representative’s office (i.e. “field audit”). Should your account be selected for audit, you will be notified by telephone or mail; the IRS will never initiate contact with you via e-mail.
If you receive an audit notice, you need to know your rights. These generally include your right to: 1) professional and courteous treatment by IRS employees; 2) privacy regarding your tax matters; 3) an explanation as to why the IRS is asking for information, the purpose of the information, and the consequences of not providing the information; 4) legal and accounting representation; and 5) to appeal disagreements before the courts.
Once the audit has been initiated, the IRS will make a written request for specific documentation needed to complete the audit. The law requires you to retain records used to prepare your return, and those records generally should be kept for three years from the date the tax return was filed. The IRS does accept some electronic records. If records are kept electronically, the IRS may request those in lieu of, or in addition to, other types of records.
An IRS audit will typically end with one of three findings: 1) no change--an audit during which you have substantiated all of the items reviewed and results in no changes to your taxes; 2) agreed--an audit where the IRS proposes changes to your tax returns and you understand and agree with the changes; and (3) disagreed--an audit where the IRS proposes changes but you disagree with those changes. If you disagree with audit findings, a conference with an area manager may be requested for further review of the issues identified. In addition, appeals mediation programs and/or appeals requests may be filed and pursued.
Seek HelpIf you are being audited or have a legal, tax-related question, it is a good idea to consult with a tax attorney. A tax attorney who understands the tax code and how the IRS works can help make the audit process as painless as possible and ensure you obtain the best possible outcome. Find a tax lawyer by quickly posting a short summary of your legal needs on Legal Services Link, and let the perfect attorney come to you!
Do You Need An Attorney?
If so, post a short summary of your legal needs to our site and let attorneys submit applications to fulfill those needs. No time wasted, no hassle, no confusion, no cost.