No matter how honest and diligent you are, an IRS audit can send shivers down your spine. The reason for this fear is that most people believe that IRS audits will include a team of agents knocking at their front door and confiscating everything in their house. While this is also a possible situation in extreme cases, mostly, the audit will include agents checking your financial statements and ensuring that you haven’t been reporting incorrect information on your tax forms. So, unless you are over-reporting deductible expenses or reporting less income, you don’t need to worry about IRS audits.
Here are some of the most common questions asked about the IRS audits
I always make sure that my tax forms are filed without any errors? Why would the IRS still audit me?
The process of selecting a taxpayer for an IRS audit does not mean you have made an error. Many returns are randomly selected through an automated process when the 1099s and W-2s don’t match. In some cases, they are a result of an amending oversight. However, there are some red flags for the IRS. For example, large business expenses or charitable donations can raise eyebrows.
Is the IRS audit affected by the amount I earn?
Yes, but only if you are earning is in millions. For example, if you earn more than $200,000 annually, there is a 1% probability that you will face an IRS audit. However, this probability increases when you earn more than $1 million.
Will I be notified of an IRS audit beforehand?
Yes, the IRS will send you a notice of the audit via mail.
What are the different types of IRS audits?
There are three types of IRS audits.
The first one is the correspondence audit. In this audit, you will have to back up the claims made on the returns by sending additional documents. This can include mileage logs for travel, canceled checks for charities, and receipts.
The second type of IRS audits is the in-person audit for which you will be summoned to the office of the federal agency.
Lastly, there is a field audit. This form of the audit will be your worst nightmare. IRS agents will be visiting you at home or office and check all the tax-related documents.
What happens when I ignore the notice of the audit?
Ignoring the notice of the IRS audit won’t make the IRS go away. Instead, the IRS will begin to think that you are hiding something. It can force the IRS to investigate immediately and impose fines or penalties. They can even get a court order to force you to cooperate. So, after you have received the notice, it is best that you respond within 30 days.
Can the IRS only audit my last filed tax return?
No, the IRS has 3 years for pursuing an audit. So, just because the year has passed, it doesn’t mean that you are off the hook. It is possible that you receive a notice for the 2018 returns in 2020. This is why it is recommended that you keep all the tax-related documents for 3 years.
What documents do I need to provide during the IRS audit?
You only need to submit the documents requested by the IRS. If you bring anything unnecessary, it might broaden the audit’s scope. If the IRS has asked for some unaccounted paperwork, try tracing your steps. In cases of charitable donations and medical expenses, you can easily get duplicate copies.
Do I need to have tax experts present during the IRS audit?
Having tax attorneys is not mandatory during an audit. However, having a tax attorney by your side can make the whole process a lot easier for you. Hire an attorney through tax resolution services, and he will do the rest.
After you’ve hired tax experts, you should let them do the talking. If you volunteer extra information, it can open up another investigation and compromise your advantage.
What will be the duration of IRS audits?
The duration of IRS audits can vary. However, tax experts recommend that you set aside a complete day to deal with the audit.
The duration of the audit will depend on a number of factors, like how organized your financial records are or how complex the issues are. In case the IRS wants more time or wants to have a follow-up meeting, you will be notified. If you want an audio recording of the proceedings, you have to give a 10-day notice to the IRS.
What penalties might I be liable to pay after the audit?
If the IRS decided that you have underpaid taxes, you might face either one of the following penalties:
- If the IRS finds an underpayment because of undervaluation or overvaluation of the property, understating tax liability, neglecting, or disregarding rules and regulations of the IRS, you will be facing a 20% penalty.
- For cases of serious underpayments that are related to fraud, you might face a penalty of 75%. If this is the case, it will be your responsibility to prove otherwise.
- For all the violations made because of negligence, fraud, and not filing returns on time or valuing the property incorrectly, you might face interest payments. It will start from the due date of the return.
- In severe cases of tax evasions, you might even face prison.
Can the outcome of IRS audits be appealed?
If the IRS has imposed a penalty on you and you are not satisfied with the audit report, it is possible to appeal to this outcome. You will have to send an appeal letter to the IRS within 30 days after the audit proceedings ended. If the IRS denies your appeal, you can file a petition in the tax court for bills worth $50,000 or less. For the amount more than that, you will have to knock on the door or a regular court.
For cases of IRS audits it is best that you hire tax experts from tax resolution services. An attorney will help you put a strong foot forward. There are a number of tax resolution services in the US that can help you with your tax-related issues. IRS audit can be a complicated process with extreme outcomes. However, as long as you abide by the law, you won’t have to worry about anything.