An IRS audit scrutinizes a company’s or person’s financial statements and details to check for accuracy in reporting as per tax regulations and to affirm that the right tax amount has been submitted.

Introduction to the Basics of an IRS Audit

Understanding what an IRS audit entails is vital for all taxpayers. An audit does not always suggest wrongdoing; it means the IRS has chosen your tax return for a closer look. This can bring anxiety to many, but knowing what it involves can ease some of that stress. The IRS uses audits to double-check that the income and deductions you reported are accurate and that you have paid the right amount of tax.

An audit can happen in several ways. It could be through mail or a correspondence audit, where the IRS asks for more information about parts of your tax return. Or it could be in person, at an IRS office or your home, place of business, or accountant’s office. Your audit method will largely depend on the complexity of the issues involved.

If you’re chosen for an audit, the IRS will notify you by mail. They will not initiate an audit by phone. The notice will tell you which parts of your tax return they want to examine and what documents you should provide. They might ask for receipts, bills, legal papers, loan agreements, logs, or employment documents.

Reasons Why the IRS May Select You for an Audit

There are a few reasons why the IRS may pick your tax return for an audit. Sometimes, it’s completely random, chosen by a computer that spots returns that look different. The IRS also selects returns when something unusual stands out, such as a very high expense in relation to income or claiming too many charitable donations.

If you have transactions with someone else who was audited, you might be audited, too. The IRS also has industry standards for various professions and income levels. If your tax return falls outside those standards, your chances of an audit might be higher.

Different Types of IRS Audits Explained

When people hear the term IRS audit, it may sound scary, but it’s simply the IRS checking to ensure the tax return information is correct. The IRS uses a few different types of audits, and each one works a bit differently.

The first type is a “correspondence audit,” which is the most common and the simplest. The IRS will send a letter asking for more details or proof of certain items on your tax return. This could be a receipt to prove a deduction you claimed or a form about your income.

Then there’s the “office audit.” This is a bit more serious. It means you must go to an IRS office to discuss your tax return. The IRS will tell you what items they’re looking at and what papers you must bring, like bank statements or pay stubs.

The third type is a “field audit,” the most detailed audit. This is when the IRS comes to your home, business, or accountant’s office to check your records. They might look at how you live to see if it matches what you reported on your tax return.

The Process of Going through an IRS Audit

Going through an IRS audit can feel overwhelming, but it’s a process that can be managed step by step. The IRS will first notify you that your tax return has been selected for an audit. This notice will also tell you what parts of your return will be examined and what kind of audit you’re facing.

The next step is to gather all the documents that support what you reported on your tax return. This can include bills, receipts, legal papers, and loan agreements. It’s important to have everything organized and only to give the IRS what they ask for—not more, not less.

During the audit, you have the right to know why the IRS is asking for information and how they will use it. You can also bring someone with you for support, like an accountant or a lawyer. If you disagree with the audit results, you can appeal.

Rights and Protections for Taxpayers Under Audit

When the IRS selects your tax return for an audit, it’s natural to feel concerned. However, it’s important to know that as a taxpayer, you have rights protected by the IRS. One of these is the right to privacy and confidentiality about tax matters. This means the IRS can only share your information with people if allowed by law.

Another right is the right to be informed. The IRS must explain the audit process clearly and tell you what they need from you. You also have the right to professional and courteous treatment from IRS employees.

If you disagree with the audit findings, you can appeal the decision and receive a fair and impartial hearing. There’s also the right to pay the correct amount of tax at most. Knowing these rights can make the audit process less intimidating.

Preparing Your Documentation and Records

Preparing your documentation and records is crucial if you’re facing an audit. Start by reviewing the audit notice to understand what the IRS is questioning. Then, collect all the documents that support your tax return entries. This could include receipts, bills, canceled checks, legal papers, loan agreements, logs, employment documents, and other records.

Organize your documentation by year and type. If you claimed deductions or credits, make sure you have the proof to back them up. If your expenses are for business, keep personal expenses separate to avoid confusion.

Creating a summary of your tax return to guide you through your records is also helpful. This summary can be used as a quick reference during the audit.

The Possible Outcomes of an IRS Audit

An IRS audit can result in several possible outcomes. If the auditor finds that everything in your tax return is correct, they will not make any changes, which is the best outcome. This decision is called ‘No Change’.

However, if the auditor finds that you made mistakes, they may propose changes to your tax return. You can either agree with these changes and pay any additional taxes you owe or disagree. If you owe a small amount, you may pay it to conclude the audit.

Sometimes, the IRS may even find that you’ve overpaid your taxes, which can lead to a refund or credit towards future taxes.

How to Appeal an IRS Audit Decision

If you do not agree with the audit findings, you have the right to appeal. The IRS notice will include instructions on how to request an appeal. You’ll typically have 30 days from the date of the notice to file your appeal.

The appeals process can involve several steps, including a conference with an IRS Appeals officer. It’s your chance to present your case and any additional documentation that supports your position. If you disagree with the IRS after the appeals process, you can take your case to court.

When to Seek Professional Tax Assistance

It is often wise to seek professional tax help when receiving an audit notice, especially if you’re considering an appeal or the audit involves complex tax issues. Tax professionals, such as CPAs or tax attorneys, have the expertise to navigate the audit process and can provide representation before the IRS.

They can help you understand the auditor’s findings, prepare your appeal, and represent you during appeals. Professional assistance can be invaluable in ensuring your rights are protected and you have the best possible outcome.

Navigate Your IRS Audit with Confidence at TaxRise

An IRS audit can be daunting, but you don’t have to do it alone. At TaxRise, we specialize in tax resolution services that bring clarity and peace to your situation. Let our team of experts stand with you if you need help with the audit process or clarification on the potential outcomes. We can guide you through each step, from preparing your documentation to appealing decisions, ensuring your rights are protected at every step. Don’t let the stress of an IRS audit weigh you down. Please take advantage of our free tax consultation and start on the path to resolving your tax issues today. With TaxRise, you’re not just getting a service; you’re gaining a partner committed to helping you get back on track with the IRS. Visit us at TaxRise to learn more and take the first step towards a brighter tax future.