Ultimate Guide to IRS Tax Audits

An IRS audit is a review or examination of a person or organization’s books and financial information to ensure that the right data is being reported. The audit also confirms that the taxpayer has reported the right amount of tax and has complied with all applicable tax regulations.

In What Way Are Tax Returns Selected for Audit?

The IRS has a variety of methods for selecting the returns that will be audited. Random selection and computer screening, where the basis of selection is a statistical formula, is one such approach. The IRS may also make an effort to compare records.

An audit may be warranted if the data on your W-2 forms, 1099 forms, and other employment documents differ from what has been reported. Additionally, suppose your return involves problems or transactions with other taxpayers, such as business partners or investors, whose returns were picked for audit by the IRS. In that case, the IRS may opt to examine your return.

What Are the Odds of an Audit?

Only a small percentage of individual tax returns are audited each year. Computer programs may be used to decide which returns need to be audited, as was already mentioned. These systems decide which returns to audit by creating norms after reviewing millions of returns. A tax return is more likely to be audited if it deviates from the accepted standard.

The most frequent causes for a return to be tagged for an audit or for the IRS to become interested in a personal return include, but are not limited to:

• Incomplete tax returns, such as those that have omissions of data or math errors;
• Unreported earnings
• A failure to disclose received taxable income;
• Suspiciously high income;
• Suspiciously low income, such as when it is significantly lower than that of others in the same profession;
• Revenue fluctuations that are significantly different from what was previously stated;
• Too many charitable donations, such as those made without reported receipts or other proof of donation;
• Involvement in tax fraud;
• Numerous large itemized deductions for which a person is not qualified; or
• Discrepancies between federal and state tax forms.

It’s important to remember that an audit red flag does not always imply that the IRS will audit someone. The information and reported returns of the taxpayer must be given to a real person for inspection and evaluation when a tax return is brought to the IRS’s notice.

This would be in contrast to just accepting a computer scan’s conclusions. An audit will be planned if the person doing the examination finds evidence of suspicious behavior in the person’s tax filings.

What Locations Are Used for Audits?

A face-to-face interview and examination of the taxpayer’s records may also be part of an audit conducted by mail or in person.

The following locations are all possible for the interview:

• IRS division
• Home of the taxpayer
• Business of the taxpayer
• An accounting firm

Which records you must supply for review will be disclosed to you by the IRS. You might have to modify your return as a result of the audit. It’s also feasible that you won’t need to modify your return at all.

The IRS will contact you by phone or mail if your account is selected for audit. The IRS will give you a confirmation letter regarding the audit if you are alerted by phone. The IRS does not use email alerts.

What Protections Do I Have During an Audit?

You have rights as a taxpayer during an audit. Among these are:

• A right to receive courteous and expert treatment from IRS agents.
• Privacy and confidentiality rights concerning tax matters.
• A right to be informed of the IRS’s justification for asking for information, how it plans to use it, and what will happen if it doesn’t get it.
• A right to representation, either by you or a third party, with your permission.
• A right to appeal disagreements to the IRS and go to the courts.

What Is the Length of the Audit Process?

The following factors determine how long the audit will last:

• The type of audit being carried out.
• The difficulty of the documents that must be read.
• The availability of the desired information.
• The readiness of each side for meetings that are planned.
• Whether you concur or disagree with the audit’s conclusions.

You will receive a written request from the IRS requesting the records needed to conduct an audit.

You are obligated by law to keep the records that were utilized to prepare your return. You must maintain such records three years after your tax return filing date.

Acceptance of Electronic Records by the IRS

The IRS accepts electronic records. The IRS may ask you to produce electronic records in place of or in addition to other types of records if you keep records electronically.

You should get in touch with your auditor to confirm that any records you submit to the IRS are in a format compatible with the IRS’s software program.

What Must I Do If the IRS Is Auditing Me?

The IRS may conduct the audits in person, by mail, or both. The records of the taxpayer may also be examined. Any of the following venues could be used for such an interview:

1. A local IRS office,
2. The taxpayer’s residence or place of business, or
3. An accountant’s office.

If the IRS audits you, they will let you know which records you need to furnish for inspection. As a result of the audit, you might need to modify your return. Furthermore, it’s feasible that you won’t need to modify your return at all.

If the IRS decides to audit your account, they will contact you by phone or mail to let you know. In addition to calling you to inform you of the audit, the IRS will also write you a confirmation letter.

It is crucial to highlight that none of the IRS’s processes involve email notification. As a result, if you get an email saying you’re being audited, you shouldn’t do anything or give the email’s sender any information.

Try not to freak out if the IRS sends you a letter about an audit. Once more, not every audit indicates that something is amiss.

Final Results of an Audit

There are three possible outcomes for an audit’s conclusion.

The outcome of an audit might not change. This indicates that there have been no modifications to the papers that you have independently verified.

If you undergo an audit, you might decide to accept the IRS’s suggested modifications.

You might disagree with the IRS’s suggested adjustments after an audit.

If you concur with the audit results, you will be asked to sign an examination report or a document of a similar nature. If you disagree with the audit findings, you can ask for a meeting with a manager to further discuss the problems. An appeal may also be made.

Do I Need to Speak with a Tax Attorney?

You should speak with a tax lawyer or other licensed tax professional if you are about to be audited so they can help you prepare and represent you during the audit. Use LegalMatch to find the right tax lawyer for your needs today.