IRS Tax Audit

 

 People usually get scared when they hear “The IRS audit.” They tend to assume that an audit is only done when they have done something wrong, like intentionally manipulating their revenues, which is not always the case. This article explains why and how IRS audits a person.

 

An IRS tax audit is a review of a legal person’s financial information by the IRS to determine if they have filed their tax returns in compliance with tax laws. It is the IRS’s verification of tax returns filed by a person based on tax laws and regulations.

 

 Know that when IRS selects you for a tax audit, they are not suggesting that you have a problem with your tax with your filing of tax returns. IRS selects people for IRS audits using different methods. The IRS regularly uses random selection based on a statistical formula. Therefore, know that you can be a victim of random selection and not your tax compliance behaviour. Another method that the IRS uses regularly is related examinations. IRS can select you for the IRS audit through related examinations when they have audited other people that are your business partners, clients, colleagues, or relatives. 

Besides these two conventional methods, IRS can select you for audit when they feel you have reported an incorrect income or unusual deductions.

Most IRS audits are light. 75% of them are usually completed by mail. Only severe irregularities in your tax returns may prompt the IRS to ask you to visit its local offices or make it send its officers to your home, office, or business to examine your financial records.

Preparing for IRS Audit

You only know that the IRS has selected you for an audit when you receive a mail informing you of its intention to do so. The notice from the IRS has the specific information it wants to examine and the documents you should present to facilitate the examination.

The notice gives you 30 days to respond to it. Please respond to this notice as soon as possible since the more you delay responding, the more interest grows on the amount IRS believes you owe. 

Embark on readying your paperwork as you try to understand the tax issue. Contact a tax expert if you need help understanding the tax problem between you and IRS. If you used a tax compilation company to file your returns, you could inform it of the IRS audit notice so that it provides you with an audit defence service. 

During the IRS Audit

If the IRS does not audit you through the mail, it will ask you to visit its local offices or send its agents to your home, office, or business. If the IRS uses the last two options to audit you, you should know your rights during the process.

· Right to representation- You can attend the audit appointment with your authorized representative or have a representative attend it on your behalf.

· Right to professional treatment- The IRS officers must show respect and courtesy during the audit process.

· Right to information- The IRS agents must explain why they need certain documents or information from you and the consequences of not providing them.

· Right to privacy- The IRS must keep your tax issues private and confidential

· Right to appeal disagreements- you can appeal disagreements within the IRS or the courts.

Remember to be polite to the IRS officers during the audit and comply with them. Show them the documents that they request only as per their notice.

After Audit

There are three results of an IRS audit; no changes, accepted the changes, and rejected changes. You should not do anything when the IRS says you should not change your tax returns. When IRS finds that you need to change your tax returns, please do not sign them until you consult a tax expert who can analyze the documents further. If your consultant verifies the report is accurate, sign it (accept the changes). If you find that the IRS made an error, appeal the decision and go to court if necessary (reject the changes).

Conclusion

An IRS audit is a regular occurrence. Do not fear. Makes sure you comply with the tax officers during the whole process.