IRS Tax Audits: Why Being Selected Is Not The End Of The World
The IRS routinely audits individuals and businesses to ensure not only compliance, but accuracy in filings and the amounts either being collected from taxpayers or being refunded. The process is not necessarily a bad thing if you have your tax affairs in order. This article will show you to ensure that if the IRS does conduct an audit of your affairs, you’ll come out unscathed.
Understanding the Numbers
The IRS audits around 80% of all tax payers over the course of their lives so in real terms you stand about a 1 in 75 chance of being audited now. Those are the statistics for gauging your chances of selection assuming things are ok with your tax returns. The greater the discrepancies on your returns however, the greater the chance of having the IRS conduct an audit on you. There is also the consideration of income and area of employment which factor into the selection process. Your focus at all times should be keeping things in order so that if an audit does arise, you are ready.
Top Tips For Avoiding Audits
The IRS does of a lot exception selection where audits are concerned. This means that a mix of factors contribute to the likelihood of your being selected. The key is to keep your tax returns low or completely free of the following:
- Fraudulent entries on a tax return
- Errors on a tax return
- Income and expense discrepancies
- Time-observed inconsistencies with filings data
Computer and human reviewers are used in the selection process and typically once it gets to a human, there’s a 1 in 10 chance the individual will be selected for an audit.
What Type of Audits Can You Expect?
Once an individual or business is selected for an audit, a decision is made surrounding the type of audit to be administered. Audits come in 3 main flavors:
- Field or Home Audits
Field audits are perhaps the ones people dread the most because they typically involve having an agent visit you either in your home or place of work. The agents who carry out these types of audits are usually very experienced; are very hard-nosed and understand the finer points of getting under people’s skin. If you have been selected for such an audit it helps to be very prepared.
- Office Audits
These are once again led by IRS officers but instead of the very confrontational approach of the field audit, a more relaxed approach is taken. The agent or officer will typically arrange a meeting at pre-determined location. You’ll then be advised on what documents to take along for the meeting and sometimes you will be given a heads up on what particular areas of your return will be examined. Don’t be fooled by the less aggressive nature of office audits though, they are designed to sniff out discrepancies and the agents or officer conducting them are not your friend.
- Correspondence Audits
The IRS uses this type of audit the most for its practicality. Instead of an agent or officer meeting up with you, all the corresponded is handled via letters through the mail. The IRS will ask you to submit certain pieces of documentation that can help clear up discrepancies on your tax returns. It may be tempting inn some instances to send incorrect or fraudulent information but this is not advised. Any hint of fraudulent information will only escalate the seriousness of your audit and before too long there will be someone knocking at your door.
Using a Tax Specialist to Help With Your Audit
The IRS wins 80% of all its audits against taxpayers. Typically this happens because most taxpayers are very poor at record keeping and cannot provide the necessary correct documentation to back up their filing. Another factor that helps the IRS win so many times is the lack of understanding of tax rule by taxpayers.
Because of these deficiencies, it is always recommended that you have a qualified tax professional help you navigate the complex tax rules and putting the necessary documentation together. Often a tax specialist will be able to spot things ahead of the audit that might evade you; this can mean the difference between winning and losing an audit.
Having a tax specialist is even more critical depending on the type of audit you are undergoing. If you are faced with a field or home audit, it definitely helps to have either an enrolled agent or a tax attorney present during the proceedings. Not only will this help with presenting a good case, it will also help with combating the aggressive tactics sometimes used by IRS agents. They say ‘poor planning and preparation’ leads to ‘poor outcomes’ and this is particularly true of IRS tax audits.