IRS Tax Audits
An IRS tax audit notice starts this mysterious and often overwhelming process. Hours of searching for receipts, civil and possibly criminal penalties also come to mind. Some tax audits are very lengthy and intrusive. However, careful preparation and audit strategy minimize your exposure.
Most of the time, an audit is just a random review generated by the computer algorithm. Other times, some very specific “red flags” on your 1040 or other forms trigger the examination process. Your audit letter should detail the cause of the tax audit. Most audits are done by mail, with the IRS requesting additional info to be sent. At times, the taxpayer or their attorney will need to meet with an IRS agent. The second type of audit is more complex, intrusive, with larger odds of expanding into additional issues or tax periods.
Tax Examination -Why Me?
Many factors may trigger the system to select your tax return for an audit. For example, certain deduction might be above a certain average. Businesses showing losses year after year will raise an eyebrow. The numbers on your taxes might not match what your employers or customers reported to the IRS, triggering a numerical discrepancy. For instance, if you got paid $50,000 at your job, but your tax return only shows $36,500 in wages, you will most likely need to address this difference with the IRS.
IRS Audit Strategy
Before responding or walking into to an audit, you should get prepared. Try to figure out and understand what the IRS is questioning or investigating. Gather and review all available records to support your position. Hopefully your records have been organized prior to the filing of the tax return. Don’t just stop with the box in the garage. Supporting audit evidence can be gathered from many resources outside your immediate possession: Banks, lenders, credit companies, vendors and customers can all be a valuable source of income and expense documentation. Keep in mind that the Government can also secure information from these sources. Gather back up docs as fast as you can. You will need time to make sense and organize the tax records. Organize and put together explanations of what you are presenting to the IRS. Don’t assume they will simply accept a bunch of papers and use them in your favor. The IRS will not organize your files on your behalf. If the exchange of information is not properly managed, the IRS may disallow allowable deductions, or hit you with more income than you earned. Make copies of all the items you give to the auditor.
What If The Audit Goes Bad?
Assuming no fraud or other criminal misconduct is suspected, you will have a chance to discuss the audit results with the supervisor, and possibly an appeals officer. If you can’t come to a resolution, you will have 90 days to file a tax court petition to protest the IRS’ Notice of Deficiency. You can also pay the balance, and sue the IRS for a refund within a specified time.
What If I Miss The Audit?
As long as you did not agree to the audit assessment, you may be able to address a bad audit result through the IRS internal channels, even after the time for a tax court filing has elapsed. If you owe money to the IRS based on an audit, you may be able to request that the IRS look at additional factors that you might have been discovered after the audit was over. This is known as audit reconsideration. If you can’t defeat the assessment, other government programs such as the Fresh Start Initiative, Offer in Compromise, or payment plans can help alleviate your tax problem.
TaxHelpers Can Help You At All Stages Of The Audit Process?
Our lawyers get involved at various stages of the tax audit process. Many clients come to us immediately upon getting contacted by the taxing agencies (early intervention). Others start the tax audit on their own, or with their accountant, and turn to our tax attorneys when they feel that that the process is starting to overwhelm them. Often, we are asked to step in once a taxing agency has made an unfavorable adjustment to the taxpayer’s tax liability.
Our audit management is grounded in extensive preparation for the audit. Although, our tax attorneys have achieved great results at every stage of the tax audit process, we feel that the best results are achieved through early intervention.
Please Call Our Office to discuss your IRS or State audit.