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A misstep in the tax audit process can be very costly. Tax Defense Network will help you stay on the right path.
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The IRS Audit Process
The IRS typically audits less than 1% of all tax returns received. A small portion is randomly selected. Others are triggered by a computer screening process. To improve your chances of avoiding a tax audit, make sure your tax return does not have any of the following issues:
Unreported income
Too many losses on a Schedule C (for self-employed taxpayers)
Math mistakes
Commingled business and personal expenses
Unusual deductions
If the IRS audit process is triggered, you’ll receive a letter in the mail. This letter will provide information on the type of audit, as well as next steps. At this point, you may wish to hire tax audit representation to help you gather the requested documentation, handle any necessary paperwork, and communicate with the IRS on your behalf.
When the audit is finished, which may take up to a year or longer, you’ll receive an examination report (Form 4549). Based on the findings in this report, you’ll either owe more taxes, no taxes, or be due a refund. If you disagree with the findings, you’ll have 30 days to request reconsideration and/or submit an appeal. Otherwise, if you agree, you’ll sign the examination report or a similar form depending upon the type of audit conducted. Should you owe additional taxes, you’ll need to pay in full or request a payment plan.
Types of IRS Tax Audits
Once the IRS initiates the tax audit process, you’ll be selected for one of four types of tax audits.
Line-by-Line Audit
If your return is selected at random, you may be subjected to a line-by-line tax audit. It’s more grueling than other audits since it examines every aspect of your tax return.
Correspondence Audit
The most common audit is a correspondence audit, which is handled through the mail. It will typically require you to provide documentation to support a deduction or other discrepancy on your tax return. Documentation may include receipts, canceled checks, charity letters, and other tangible proof. Once you mail in the requested materials, the matter can be quickly resolved.
Field Audit
In rare instances, an IRS agent may come to your home, accountant’s office, or your place of business (if you own the business). This type of tax audit is more intrusive and generally reserved for those earning more than $100,000.
Office Audit
If the IRS would like to ask additional questions or get more details, it may request an office audit. This will require you to meet with an IRS auditor at a local IRS office. You’ll be given a specific time and date, as well as a list of documents to bring with you.
Although most correspondence audits may be handled on your own, we strongly encourage tax audit representation for an office or field audit. These types of tax audits are more in-depth and could leave you with additional tax liability, if you don’t have an experienced tax professional on your side. At Tax Defense Network, we have the knowledge and experience to help you through the IRS audit process. Contact us today for a free consultation.
