Why Would the IRS Select You For an Audit?
You may be wondering what factors could trigger an IRS audit of your tax return.
There are a couple of reasons your tax return may be chosen for an audit. Your return may have been compared against the "norms" for similar returns in your industry and the information you reported didn't align with the standards or your return involved issues or transactions with other taxpayers whose returns were selected for audit.
If you are selected for an audit you will be notified by mail, not telephone.
The IRS manages the audit by mail or through an in-personal interview to review your records.
They will provide you with a written request for specific documents that they want to see. The law requires you to keep all your records you used to prepare your tax return for at least 3 years from the date the tax return was filed although you may want to retain them longer.
The IRS can include returns filed within the last three years in an audit. If they identify a substantial error, they may add additional years. The usually don't go back more than the last six years.
The length of an audit varies depending on the type and complexity of the issues, the availability of information requested, the availability of both parties, and your agreement or disagreement with the findings.
So, what rights do you have as a taxpayer?
A right to professional and courteous treatment by IRS employees.
A right to privacy and confidentiality about tax matters.
A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
A right to representation, by oneself or an authorized representative.
A right to appeal disagreements, both within the IRS and before the courts.
If audited, the audit can be concluded in three ways: no change, agreed, or disagreed.
If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted. If you disagree with the audit, you can request a conference with an IRS manager.
What can you do to protect yourself from an audit?
Keep accurate financial records
Find ways to LEGALLY minimize your taxes
Accurately prepare your tax returns
Meet all tax filing deadlines
To reduce your chances of an audit work with an experienced tax profession to help you "audit proof" your business.
Interested in learning more about “audit proofing” your business? Schedule a consultation here.
To receive a notification each time a new tax tip is posted subscribe to our blog “Understanding the Tax Game” here.
