The goal of an IRS Audit is to enforce the tax law fairly and efficiently to increase voluntary compliance and narrow the tax gap.
When you are selected for an IRS audit it can disrupt your life and invade your privacy. It can be expensive to hire representatives who know the law to defend you (tax lawyer, CPA, EA or other representative) and it can result in taxes owed.
Upon the commencing of the audit the auditor should provide you with a letter about what year and which area(s) the audit will be focusing on.
Always be professional and treat the auditor how you would want to be treated. Try to compile the records requested, put them in a clear order and provide totals, receipts, or backup items that may be helpful. Keep a copy of what you have provided, respond by the due dates on the letters or respond by the due date with a note that you are working on the request and it will be provided by _____(enter new date you can respond by) . Track the delivery of your mail if you mail items in.
You should ask for your auditors managers name, id# and fax & phone number, at the beginning. If they auditor does anything inappropriate report it to their manager. You may also ask the manager for their managers information if they fail to correct the auditors behavior.
Auditors generally are hard working individuals who are looking to see that the rules are followed and that errors are not made. However, some can use their position of power inappropriately, without the goal of accurate tax collection. That can not be tolerated and needs to be reported right away.
The average American taxpayer has a 1% chance of being audited in their lifetime.
A return can be selected for an audit for various reasons:
1. At Random, there is a lottery selection for all tax returns claiming ______ (deduction or credit) , and yours which claims it has been selected.
2. For some error in processing, when an error presents in the processing of the tax return it can be flagged and audited in the area of the error to get it corrected or filed as prepared.
3. Due to a bad preparer. If a tax preparer has been flagged because the person who prepared it was found to prepare returns intentionally incorrectly to fraud the government, all returns filed by that preparer, within the statute to audit period, may be reviewed for errors. The Statute to Audit a return is 3 years from the filing of the return.
4. A whistleblower, the return is audited based on a tip being reported that there is unlawful positions taken or fraud being done by the taxpayer.
5. Dif Scores, the IRS has a scoring system that it uses with your tax return data, and taxpayers falling in a certain range are randomly selected for audit.
When you are audited, if an error is discovered, the auditor may review the prior and subsequent return for the same error and ask those be corrected as well.
Pay any balance due online or by check, not cashiers check, they are harder to locate if the Service does not apply it correctly in their system.
If you feel you have not been given proper chance to substantiate your deduction or credit, that there was something in the audit that went unconsidered or the auditor took a prejudice, you can elevate your final audit decision to the Appeals department. At Appeals you can audit or negotiate the audit results, show new evidence and determine a new final audit result.