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IRS Tax Audit:
IRS Tax Audits: What Are my Best Options If I’m Audited by the IRS? Where Do I Start? Who Should I Call To Get Help With My Audit?
Why am I Being Selected for an Audit?
When you are selected for an audit, it does not necessarily mean that there is a problem. There can be several different methods the IRS uses to select individuals for an audit including:
– Random selection: Sometimes you may be selected for an audit based on pure random selection. This is done through a computer screening, and most of the time does not indicate that there is a problem.
– Related examinations: You may be selected for an audit if there is a discrepancy or issue between your returns and the returns of other taxpayers. This is typically the case for business partners or investors, whose partner’s return has been chosen for an audit.
What Are Your Odds of Being Audited by the IRS?
As mentioned above, being selected for an audit does not always mean there is a problem with your returns. But what is the exact of you being audited by the IRS? According to an article on Forbes, your overall chance of being audited is around 1%, varying depending on your income. For example, if your income is less than $200,000 with no income from sole proprietorships, rental properties, partnerships, etc., your chance of being audited is around 0.4%. On the other hand, if your income is more than $1,000,000, then your chance of being audited shoots up to 12.1%.
What Happens If You Get Audited?
Most individuals may think that getting audited is an extremely stressful process, being interrogated by an IRS agent for hours on end. But that is simply not the case. In fact, over 75% of tax audits are conducted by mail. They are typically additional questions an auditor has, or additional documents requested by the IRS pertaining to your return. Other forms of audits include:
– In-office Tax Audits: These are audits conducted at your local IRS office. You are typically required to bring additional documents and an explanation of these documents. Although not necessary, you can bring an accountant or attorney along for your representation.
– Field Audits: Field audits are audits conducted at your home or place of work. An IRS agent will visit you to investigate your return. These are typically only for returns that raises many questions or has many issues that need further explanation from the taxpayer.
Tax Return Audit Process
Any audit starts with a letter of notification via mail to the taxpayer. The letter contains detailed information on your tax return audit process, why you are being audited, and further instructions, including a deadline to reply to the letter. From there, you are typically required for one of the following:
– Audit by Mail: The IRS asks the taxpayer for additional documentation or questions regarding the return via mail, and the taxpayer is required to provide them with the information. This is the case for the vast majority of audits.
– In-Person Audit: The IRS visits your home or place of work to conduct interviews and gather additional information regarding your return. The time, location, and method of interview is assigned by the IRS, and is most common for individuals or businesses that has earned more than $100,000.
Once the audits are complete, the taxpayer is subject to one of three different outcomes. Your return is left unchanged, your return has changed, and you have agreed, or your return has changed, and you disagreed.
What to Expect During an Audit
An audit is conducted when the IRS requires additional information from the taxpayer to justify their returns. Therefore, you can expect to be asked for additional documents such as receipts or to answer questions the auditor may have about your return. Regardless, it is in the taxpayer’s best interests to have documentation ready if they are notified of an audit.
What to Do if You Receive an IRS Tax Audit Notice
If you receive an IRS Tax audit notice, the best thing to do is to read the audit notice carefully and follow the exact procedure. The notification will typically outline why you are being audited, what you are being audited for, and how you are being audited. If you are being audited via mail, be sure to provide the exact documentation that the IRS is requesting, and to answer all the questions they have regarding your return. If you are facing an in-person audit, contact your accountant or tax advisor who helped prpare your return, and perhaps even a tax attorney to represent you.
IRS Tax Audit Penalties: What You Should Know
There is a wide variety of tax audit penalties that can be assigned after an audit is conducted. This includes penalties for understating your taxes, overstating pension liabilities, and understating gifts or estates. The penalties all vary depending on your income, the discrepancy between how much you filed for returns and how much the auditor has changed the amount to, and more.
Regardless, it is in your best interest to pay the due taxes in a timely manner. Should you disagree with the results of your audit, you can request an audit reconsideration before you pay any taxes, penalties or interests that you plan to dispute. If you have paid your taxes or penalties but have decided to disagree with the result after, you can request a refund. If your request for an audit reconsideration is denied, you can request an offer in compromise. Although with a low chance, this settles your tax obligation for a fraction of the actual amount owed.
How far back can the IRS go to audit my return?
Typically, the IRS goes back up to 2 years worth of tax returns in an audit. If the audit uncovers major errors or discrepancies, the duration may increase to 3 to 6 years, although the IRS does not go any further back
What Are My Rights if I Get Audited?
As stated on the IRS website, you have the following rights if you get audited:
– Right to be informed
– Right to quality service
– Right to pay no more than the correct amount of tax
– Right to challenge the IRS’s position and be heard
– Right to appeals an IRS decision in and independent forum
– Right to finality
– Right to privacy
– Right to confidentiality
– Right to retain representation
– Right to a fair and just tax system
For more information on your rights as a taxpayer, be sure to read this publication on a taxpayer’s rights by the IRS.
Contact a Tax Attorney if you Receive an Audit Notice From the IRS
Did you receive an audit notice from the IRS and don’t know where to begin? Don’t be nervous, frustrated or scared about an audit from the IRS. An audit in most cases can just be selected at random or the IRS just wants more information to support claims on your tax return.
At Sheppard Law office we work with individuals and businesses nationwide. We have 5 locations located in Ohio , staffed with a team of professional tax attorneys that are up to date with all updated tax law information for each state. Our Ohio locations are in Hilliard, Canton , Newark , Mount Vernon and Akron . Call us for a free consultation today, our toll-free number is (877) 505-9455 .
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