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What Should You Do If the IRS requests an "Audit" of Your Tax Return?

Updated: Nov 11, 2022

The word "audit" remains to scare taxpayers, but the fact is that not every audit is the outcome of a mistake or that the Internal Revenue Service accuses you of wrongdoing. The IRS might want to audit your taxes and financial records for a variety of reasons, and there are various actions you can take to make the process as smooth as possible.

In light of an increase in identity theft scams involving tax audits and returns, we'd want to take a minute before digging into this issue to highlight that the IRS would never conduct an audit over the phone or by email. Taxpayers are always notified of a pending audit by US mail.

IRS Audits for Various Reasons

Although it is absolutely the case that some audits are caused by irregularities, the IRS can also ask for an audit to confirm the information in your tax documents, to fix a simple error like forgetting to attach a Schedule, or because the individual taxpayer has some connection to other taxpayers whose paperwork raised questions, like business partners or investors. You could even have been chosen for audit based on a random selection procedure evaluating taxpayer returns to determine how they compare to industry standards.

Different auditing procedures

The IRS does three different types of audits. The taxpayer will always get a letter informing them of the review.

• Correspondence audit - When a low-level error or missing occurs, the department sends notice to the taxpayer mentioning the error and requests that amended information get provided through mail.

• Office audit - This form of audit is scarier since it requires the taxpayer to attend in person at an IRS office with their paperwork. These audits are frequently the consequence of unexpected deductions or credits, such as a high medical expenditure deduction for which the department demands verification in the form of invoices and payment receipts.

• Field audit - The most risky of all audits, a field audit includes IRS agents visiting the taxpayer, generally at their place of business or at their residence, in order to collect information. To review the tax return in detail.

How to Get Ready for an Audit

Even the most careful and upstanding taxpayer will stammer when they receive notification of a tax audit, but the worries caused by the notice can easily be balanced by the knowledge that you've kept solid records and maintained copies of all essential documents. If you aren't keeping careful records, understand that if you're audited, you'll have to justify that you deserve whatever deduction you've claimed, so change your methods and begin keeping well-organized files of all financial statements, invoices, and receipts.

This will not only be extremely beneficial in the event of an audit, but it will also be quite beneficial if you need to examine the condition of your firm or prepare a financial statement for possible investors or when applying for a loan.

If you are concerned about dealing with the IRS on your own, you have the right to be represented by a professional of your choosing. This might be a certified public accountant, an attorney, or an enrolled agent. This individual or people can accompany you or represent you at any face-to-face encounter. You are not required to attend an audit session unless the IRS explicitly requests that you do so.

A report will be given to you following the audit. Simply sign the report or any other attachment form the auditor gives you if you agree with terms.

The rights of taxpayers

You may believe that the IRS has complete control over you, but the department has passed a taxpayer bill of rights that specifies the IRS's authority to collect taxes and the protections provided to taxpayers in the face of an IRS collection.

The following are included in the taxpayer bill of rights:

• Right to Information

• Right to Efficient Service

• Right to Pay Only the Correct Amount of Tax

• Right to Challenge the IRS's Position and Be Considered

• Right to Appeal an IRS Decision in an Independent Forum

• The right to clarity

• The right to privacy

• The right to confidentiality

What happens if you disagree with the audit decision?

Knowing that you are rights are comforting, but challenging an IRS examiner's judgment can be difficult. If you've followed all of the examiner's instructions and now have a Revenue Agent Report that you disagree with, there are particular measures you may take. You may:

• Request an informal meeting with the examiner's management before the deadline specified in the report.

• Request an Appeals meeting before the deadline specified in the report.

One can also submit an appeal with the tax court if you have received a Statutory Notice of Deficiency.

How to Avoid an Audit

• If you need more time to gather your papers, don't be afraid to request a postpone.

• Learn about your legal rights.

• Be truthful

• Discuss your audit strategy with your Authorized Representative, who might be your CPA, attorney, or someone else. That individual will answer immediately to the IRS agent.

• Do not attempt to misguide an auditor. Have the needed information on hand so that you can get through it more quickly.

• Do not be afraid to contact the auditor if you disagree with the examination report that they have prepared.

• Keep in mind that if you are unable to pay a tax due or dispute with the auditor's assessment, you can negotiate.

Working with an experienced tax agent who can assist you with both your preparations and

your response is one of the most essential decisions you can make in the face of an audit notice. Contact our office now for more information on the services we can offer.

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