The majority of Americans file their tax returns each year and don’t hear anything back from the IRS. But if you’re in the minority and end up getting audited, don’t panic. There may or may not be a reason for concern. You may just be selected at random.
The best way to handle the situation is to try to find out why you are being audited. Be sure to contact the IRS and comply with its demands. If you want to hire a tax professional or attorney to represent you, remember DexKnows can help you find someone in your community.
What is an audit?
Rocket Lawyer describes an audit as an accounting procedure under which the IRS checks your financial records to see if you filed your tax return correctly. The IRS may check and see that everything is correct, which means everything’s OK and the agency is done asking questions. Or, if the IRS determines there were errors or purposeful misreportings of your finances, you will have to pay a recalculated return amount and likely interest penalties as well.
There are various reasons why someone may be audited, including returns that are inconsistent with previous years, cash wages, 1099 and W-2 forms that don’t match up with your reporting and “automatic flags,” such as above-average withholding.
Types of audit
There are four types of tax audits:
- Correspondence audit, which requires you to send copies of financial records to the IRS office.
- Office audit, which asks you to bring documents to your local IRS office.
- Field audit, in which a tax agent comes to your home or office.
- Taxpayer compliance measurement program audit, which requires all of your tax return to be substantiated.
The majority of audits fall under correspondence audit, likely the IRS asking you to send back paperwork proving your income or justifying your deductions.
What to do if you are audited
If you receive a letter from the IRS, don’t ignore it. That’s just going to make the tax man mad and hurt you in the end. Respond to the notice and get your paperwork in order.
The IRS can audit a return within three years after it’s filed. Make sure to keep receipts at least that long just in case. Keep them organized so that if you do get audited, you can respond effectively and quickly. If you need more time to gather paperwork, request it. But make sure you have a good reason before asking. That doesn’t mean waiting until the night before.
When answering questions, answer them honestly. Then stop talking. There’s no need to give the IRS agent more information than requested, and there’s always the chance giving more information will lead to more difficult questions. This isn’t the time for chitchat. Stay calm. Being emotional isn’t going to buy you any favors from the IRS. Definitely don’t argue.
If it’s just a correspondence audit and you don’t have to meet with anyone, it’s probably safe just to send the information and be done with it. If you have to meet with an agent, consider hiring a professional tax lawyer, certified public accountant or enrolled agent to either go with you or go in your place.
When the audit is complete, you will either get a ruling saying you were correct or be informed that your filing was incorrect, which will likely mean you owe more money. If that’s the case, try to work out a payment plan. Also, if you still disagree, you can request a hearing with an appeals officer.
Remember, getting audited isn’t a reason to panic. Stay calm. Comply with the request. If you want representation, check out DexKnows to find a tax attorney or certified public accountant in your community.