The IRS audited almost 1 million tax returns in 2017, which was about .5% of all tax returns filed in that year. While your chances of getting audited are low, it is still possible to get selected by the IRS. Sometimes it’s just due to you having a complicated tax return, or it might be because the IRS thinks you may have more income than you claimed. It’s important to know what an audit entails and what could happen during the audit. Here are some things to keep in mind if you are selected for an audit!
Types of Audits
There are a few different types of audits: a mail audit, office or desk audit, or a field audit. Most IRS audits are conducted by mail and only a quarter of the audits are conducted in person by the IRS. A mail-in audit is basically just a request for paperwork because the IRS is either missing paperwork or needs paperwork for an item on your tax return. These tax audits typically involve simple issues ranging to unreported income, alimony, dependent claims, education credits, etc. This type of tax audit is very deadline oriented and it is important that you mail in the items requested. The IRS could ask for receipts, bills, canceled checks, legal papers, loan agreements, and medical records. Mail audits are simple and less intrusive, about 9 out of 10 times the audit ends in a change to the tax return.
An In-office tax audit is a little bit more serious than a mail-in audit and is usually more in-depth than others. If you are selected for this tax audit, the IRS is most likely looking for underreported income or improper deductions. In this tax audit, you will meet with an IRS auditor, also known as a Tax Compliance Officer, who will talk to you about your tax return and they will inspect all of your records. The purpose of an office audit is to make sure you are accurately reporting income and paying the lawful amount of tax. You may need to bring in some paperwork and substation to help support yourself and your federal tax return.
In a field audit, you will meet an IRS agent, called a Revenue Officer, at your home, place of business, or your tax preparer’s office. This type of tax audit revolves around more complicated issues. This tax audit will include a thorough investigation of your home and belongings. A field audit is a comprehensive review of your entire financial record. The agent in this audit will usually request your bank statements, accounting records, and other items. If you do not give the agent the documents, they will usually summon them from your bank or accountant. Agents in these audits will look at your lifestyle and compare it to your reported income. If the agent believes you are living beyond your income, they can assume you have unreported income. You will know the date of your field audit as it will be listed in the letter you receive from the IRS. The letter will indicate the time and date of when the field audit will take place. These tax audits can last anywhere from one day to a week, depending on the size of the business.
Do’s and Don’ts
If you are chosen for an IRS audit, there are some things you need to do and some things you should avoid while you are being audited.
- Don’t ignore the audit: Ignoring the audit will not be beneficial for the taxpayer. If you are thinking that it will just go away if you ignore it, you are wrong. The IRS will not forget about you or the taxes they think you will owe.
- Don’t lie to the auditor: Lying to the auditor is a federal crime. Be upfront and present the facts to the IRS auditor. They will find out if you are lying or trying to hide something. If the auditor thinks you are lying or hiding information or even money, they will not hesitate to reach out to a third party, like family, friends or business partners, and question them if they think they will give them the information.
- The IRS auditor doesn’t have the final say in the audit: If you do not agree with the auditor’s findings, you can appeal their decision. You can file an appeal and then you will be able to present your case to an appeals officer. If you still don’t agree with the appeals officer’s findings, you can dispute those findings in Tax Court.
- You need to file all your tax returns before meeting with the auditor: If you are selected for an audit it is very important that you file all your missing tax returns. If you have missing tax returns during the audit, the auditor can file the returns for you, which is called a substitute for return. They will not claim any deductions, credits, or dependents for you, which can lead to a large tax balance.
- Be prepared for the audit: Not being prepared can lead to frustration on the auditors part and could lead to you not being able to fully present your case. You are your best advocate in an audit. Being prepared is especially important if you don’t have a tax attorney. You need to know what the tax code means and how it is applied so you can plead your case to the auditor.
- Elevate issues to the auditor’s manager: You might feel like the audit is dragging on forever and you are not getting anywhere with the auditor. If this arises you should ask to speak with the auditor’s manager. They will listen to your side of the case and will intervene if needed on your behalf.
- Get all request information in writing: Make sure you have everything in writing from the auditor. If they forget or get confused over what you agreed on, you then have the proof to show them. Don’t be afraid to take charge of the audit. You can request that things be put into writing so you have a record of it. This will benefit you if you decided to appeal the audit findings.
- Remember and obey deadlines: In an audit, there are a lot of deadlines, that include the audit appointment, deadlines to provide information, deadline to respond to the initial audit report, the deadline to petition IRS appeals, the deadline to petition tax court and many others. As a taxpayer it is your job to remember all these deadlines, the auditor will not remind you of them.
- Contest the penalties: Typically taxpayers do not argue when penalties are applied. In the past IRS auditors have been criticized for tacking on extra penalties to taxpayers. It is your job as the taxpayer to pay attention to everything the auditor is doing. This could potentially save you money.
- When in doubt, seek a higher authority: IRS audits are no easy walk in the park. You need to have knowledge of how to navigate the audit, know your rights as a taxpayer, and how to advocate for yourself. Unless you are a seasoned veteran with audits, it would be in your best interest to seek advice from a tax professional. Tax professionals deal with the IRS every day and will be able to navigate you through the audit and fight for you on your behalf.
Trying to navigate an audit can be difficult, especially if you have a lot going on personally. That’s why we are here to help you. We know it can get tricky and stressful and that’s why we have tax attorneys ready to represent you against the IRS. We know the language, we know the tax law and how it can be applied. Give us a call today at 844-841-9857 or click below to schedule your free consultation.