What To Do When You Are Audited By the IRS

You’ve finally submitted your taxes and you think you are in the clear. Maybe you are due a refund, maybe not, but the fact of the matter is you are finished until next year. This is typically true unless you happen to be one of the masses who get audited. Even if you submitted everything by the book or paid a licensed tax preparer to file your taxes, you can still be selected at random for an audit. If not, you have most likely been flagged by the IRS’s sophisticated algorithms that seek out mistakes or otherwise questionable filings.

Most of the time the computers at the IRS pick up on the number of deductions taken in relation to the other inputs on your tax form. For example, if you do not have a lot of income, yet your deductions are relatively large, there is a high likelihood that you will be audited. Other criteria such as your profession are taken into account in regards to the types of deductions you are taking. Other high risks factors occur when your records don’t match that of another institution such as your bank or employer. Additionally, auto, travel, and entertainment deductions are all reviewed closely for discrepancies or otherwise unusual data.

First Steps When You Receive an Audit Notice

Although you may want to seek the advice of a licensed tax professional, the best course of action is to respond immediately. More times than not, it is a simple fix and you can handle the problem with relatively little effort. There are a lot of cases where you simply did not perform your arithmetic correctly and you are either due more money or you owe more money.

What If It’s Something Bigger?

If you are not already doing so, you should be saving your records of tax filings. It is the law to have at least the last three years. This preparation comes in handy, especially if you are selected for an audit. Make sure that you have reviewed all of the documents that are requested of you before your audit date. If you are not prepared adequately, you may be dismissed without a chance for resolution.

During the Audit

There are several ways in which an audit may be conducted. If it is one of the aforementioned simple fixes, often times the resolution comes about by way of mail. Other more complex issues are often addressed either in the IRS office or in the tax payer’s home or tax preparer’s office.

Once your documents have been reviewed, there are one of three courses of actions that can result. As a taxpayer you can agree to the IRS proposed changes, disagree to the proposed changes, or provide additional support to prove that no change is necessary.

What If You Don’t Respond?

Not surprisingly, ignoring your tax audit will not make it go away. There are several extreme actions that the government can take such as freezing funds, garnishing wages, filing liens, or even filing criminal charges. With this in mind, you definitely do not want to ignore this issue. If you are unsure of what to do, it is always a good idea to seek the advice of a tax attorney.

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