Being selected for an audit doesn't mean that you're suspected of incorrectly reporting your taxes.
There's no getting around it: The prospect of being audited by the IRS is unnerving. But the agency chooses to audit individuals and businesses for a number of reasons, including:
- Mismatched documents. If numbers from forms like W-2s and 1099s don't match what was reported, a taxpayer may be targeted.
- Proximity. When someone has a business relationship with someone else who’s being audited, like a partner or investor, an audit may be ordered because of shared issues and/or transactions.
- No reason at all. Some are selected for audits simply because a statistical formula was applied and they came up.
What is an IRS audit?
The goal of an IRS audit is to determine whether the taxpayer has paid the correct amount of money in taxes. This is done by examining the taxpayer's accounts and financial information.
How will I be contacted?
You'll receive a phone call and/or a letter. The initial contact is never made via email.
Where will the audit be held?
There are many options. An audit may occur at an IRS office, or it may be at your home, your place of business, or at an accountant's office. It may also be done through the U.S. Mail.
How long will it take?
There are many factors that have impact on the length of an audit, including complexity of the issues and availability of both the necessary records and the involved parties. An audit will of course take longer if the IRS and the taxpayer(s) have difficulty agreeing on the results.
How long after I've filed a return can the IRS still order an audit?
Audits are usually conducted within three years from the date a specific tax return was filed, so you should keep supporting documentation for at least that long. You should keep payroll records for a minimum of four years. In some cases, a longer period of safekeeping is needed.
What are my rights as an audited taxpayer? There are many. The IRS has a publication called Your Rights as a Taxpayer. These include the right to:
- Courteous, professional treatment by IRS representatives.
- Confidentiality and privacy.
- Representation, either by you or by an authorized representative.
How is the outcome of an audit determined?
An IRS audit can conclude in one of three ways. There can be no change, which means that you have provided information that the IRS accepts as valid, and the return does not have to be modified. In an audit that is agreed, the IRS has recommended changes based on the information provided. You understand them and agree with them. An audit can also be disagreed. The IRS has proposed changes, but you don't agree with them. In a case like this, the IRS may call in a manager to review the findings. You also have the right to file an appeal.
Is there any way to avoid being audited?
Since some audits are selected randomly, there's always a chance that you’ll be audited. However, there are red flags in tax returns that sometimes prompt the IRS to order an audit: cash-intensive businesses such as salons, bars, and restaurants are usually given an extra look, a high amount of charitable donations or meals and entertainment expenses, and 100% business use of a vehicle to name a few.
Make sure that you have your accounting records and receipts in order and the audit will be a lot less stressful. We are always here to help and offer services to help you get your records in order.