What are the ten things to know About Surviving an IRS Audit?

Tax audits aren't common. In the financial year 2018, a mere 0.6% of individual income tax returns faced audit according to the IRS. The likelihood of being audited by the IRS arises for those earning $200,000 or more. The IRS will contact you if it finds discrepancies between your tax return and the paperwork submitted by your brokerage firms, employer, or any other source.

Scrutiny initiates if auditors spot some red flags. Red flags such as failing to disclose taxable income, neglecting to report cryptocurrency transactions, using many round numbers, and making typo errors may trigger a tax audit.

Taxpayers should understand that an audit in no way implies suspicion or criminal activities. Tax returns documents are a set of financial and complicated documents that must be evaluated to confirm their accuracy. The audit process is known as scrutiny and examination and does not imply that an intentional error occurs. Maybe you are not aware of new changes and requirements under the law or forgot to mention something important. The IRS may contact for a variety of reasons.

Taxpayers come through a random selection and computer screening process. According to IRS, it bases on statistical data and formula. If your return does not follow the norms, you may be chosen for an audit. If your tax filing includes a transaction with bother taxpayers, you may also face an audit.

The statistics for the fiscal year 2017 from the IRS reveal that individual taxpayers who made between $200,000 and $1 million faced audit at a 0.8 % rate. If they ran businesses, that rate was 1.6%. Those earning more than $ 1 million faced an audit at a 4.4 % rate. If you make more, then you are likely to hear from the IRS. More earnings imply that you consider using a part of it to hire an expert tax preparer.

IRS selects returns that are most likely to have errors on complex criteria. The IRS usually takes three years to start and finish all its audits. The audit begins within a year of filing. The IRS audits returns in the following three ways:

1. Correspondence audit, by mail
2. Desk or office audit, at an IRS office
3. In-person, at your home, or field audit.

During an audit process, the IRS will ask for information. You must provide the answers just as the IRS may request. If you have engaged a tax professional to handle your audit, then your tax expert will work with the IRS.

You Have To Understand The Following:

1. The mail audits in the IRS notice are limited to a few items.
2. Business or filed audits require more work. You'll need to gather more documents and more in-depth answers about financial activities.
3. In the case of field audits, unless you are well versed, with the procedures, its recommended to hire a licensed tax professional who can address your tax position before the IRS.

Prepare Yourself With The Following To Face An IRS Tax Audit:

1. Prepare a response based on the items mentioned in the letter that you received.
2. If you don't have documents to support, get them prepared from a third party.
3. Respond to the IRS on time
4. The IRS may disagree with you on a deduction that wasn't allowed, or on income sources. Be prepared with your interpretation of the facts and the law.
5. If the IRS thinks there is an adjustment to your return, the IRS will ask more questions. You will get an Information Document Request, which you'll need to respond by the deadline.
6. The IRS will close the audit or propose adjustments to your returns.
7. You will get a report of the IRS findings and a letter that allows you 30 days to appeal if you disagree.
8. Within 30 days, you can request an appeal before the IRS Office of Appeals. After 30 days, the IRS will dispatch you a letter called Statutory Notice of Deficiency. This letter closes the tax audit and allows you to petition the US Tax Court.
9. In a mail audit, the letter proposing adjustments also serves as a 30-day notice. Taxpayers mostly overlook this and lose their ability to appeal against the audit findings within the IRS.
10. Get expert help by engaging a tax professional who can help you navigate an IRS audit.

To Summarize

You don't have to panic when you receive a Notice from the IRS. A notice means that the IRS is taking a close look at the return that you have filed. The check is about income from all sources and the deduction that you received under the law.