Answers to your questions about IRS tax audits
When it comes to being audited by the IRS, jokes and horror stories abound. However, unless you have been through it yourself, you may not be sure quite what an IRS audit involves. Whether you are facing an audit or are simply curious about the process, here are some answers to a few frequently asked questions.
How does the IRS decide who to audit?
When you file your tax return, the IRS first checks it against other returns from similarly situated taxpayers to see how it compares against the statistical norms. If something about your return stands out from the crowd, it will then be subject to further review by trained IRS specialists, who will look at it more closely to look for any potentially questionable items and decide whether to accept the return as filed or contact you for more information.
How long can the IRS wait before performing an audit?
In most cases, the IRS selects tax returns for auditing relatively soon after they are filed; usually within a year or two. However, an audit typically may include any tax returns filed within the previous three years and in some cases can go back even further. If a substantial error is discovered, the IRS may audit your returns as far back as the last six years.
Where are audits conducted?
Sometimes tax audits are conducted by mail. If this happens, the IRS will send you a letter asking you to mail in additional information and documentation about specific items from your return, such as your income, expenses and any itemized deductions you have claimed. Other times, the IRS will conduct audits in person. An in-person audit may take place either at an IRS office or at your place of business.
What if the IRS is wrong?
Just because you are audited does not mean you have done anything wrong. Similarly, just because an auditor determines that you owe a tax liability does not always mean you do. If you disagree with the audit results, you have a right to file an appeal.
How can I minimize the risk of tax audits?
The most important thing you can do to minimize your risk of being audited by the IRS is to make sure your tax returns are filled out accurately and correctly to the best of your ability. This means not only being thorough and honest but also checking your work to make sure it is free from typos, mathematical errors or omissions that could raise red flags for auditors.
Other ways to help avoid an audit include:
- Keeping a clear boundary between your business and personal expenses, both in day-to-day life and when filling out your taxes.
- Being consistent in the deductions and charitable contributions you claim from one year to the next; abrupt changes can invite additional scrutiny.
- Take extra care when claiming a home office deduction, if you choose to do so. This is a deduction where people often make mistakes, so auditors tend to look at it more closely.
If you are facing an audit or any other controversy or collection matter with the IRS, it is a good idea to get help from an experienced tax lawyer rather than trying to handle it on your own. He or she can help you understand the complex laws that apply to your situation and will advise you of the pros and cons of each course of action available to you. Contact David Coffin PLLC to arrange a personalized consultation.