When tax season rolls around each spring, most Texas citizens feel at least annoyance if not outright dislike for the Internal Revenue Service, or IRS. The IRS is responsible for collecting federal taxes and for enforcing tax laws. And like tax collectors throughout history, they tend to be feared and disliked by the population.
But understanding how the IRS functions, and especially how tax audits work, can take away some of the mystique and make the IRS seem a little less scary.
The basics on the IRS
The IRS is a federal agency with one of the largest workforces in the government, with over 73,000 employees. The IRS is responsible for gathering federal taxes, which means the federal income tax for most people. But note that the IRS also has jurisdiction over any federal taxes, not just the income tax.
The IRS is also responsible for enforcing the tax code, which means investigation citizens suspected of not correctly paying their taxes. The tax audit is one of their primary tools in doing so.
How does an audit work?
Every year, the IRS selects hundreds of thousands of citizens to audit. An audit consists of an inspection of a person or organization’s financial information to ensure that their reporting and tax payments comply with tax law.
An audit may take place in person, or may be conducted by mail. If audited, you’ll initially be informed by mail, and the IRS will communicate the next steps. If the audit discovers discrepancies, you could face fines or incarceration.
While the IRS does audit entities it flags as suspicious, not all audits come as a result of suspicion. In addition to auditing based on the data, the IRS selects some people randomly for an audit. That means it’s possible to be audited even if you’re confident you’ve paid your taxes promptly and correctly.
The IRS is responsible for enforcing tax laws and gathering federal tax revenue. The audit is the IRS’s primary tool to inspect potentially non-compliant taxpayers.