If you’re reading this, you are probably in a not-so-fun situation. So, first, take a deep breath because the audit is going to be okay!
Just because you’re getting audited does not mean you are being accused of a crime. The IRS is simply conducting an impartial audit to determine the accuracy of your tax return.
Hopefully, that stops your nightmares of going to prison – so get some sleep!
Learn how to avoid this situation in the future.
WHAT IS AN IRS AUDIT?
When the IRS audits your tax forms and financial documents, they are confirming that you filed your tax return correctly and followed the tax laws.
Therefore, your expectations are to demonstrate that you’ve reported all income and were actually eligible to take all credits, and deductions shown on your return.
Also, keep in mind that there is a period of limitations. The IRS typically has three years from when the return was filed to complete an audit unless tax fraud or underreporting is involved. Head here to see how long you should keep your tax documents.
REASONS FOR AN IRS AUDIT
There are several reasons why your tax return may be audited. Some of these reasons include:
- Random selection and computer screening
- Related examinations. (If your return is connected to another taxpayer’s return that was selected for audit)
- Failing to report all taxable income
- Failing to report cryptocurrency transactions
- Making typos
- Making math mistakes
- Using an excessive amount of round numbers with itemized or business deductions
HOW DO I KNOW I’M BEING AUDITED?
The IRS will reach out to you by mailing a notice that you’re being audited, which you have the right to appeal. Do not ignore this notice, you need to act on it right away to avoid further penalties or suspicions.
If you receive a text, email, or phone call that the IRS is auditing you and threatening immediate payment or arrest then you are dealing with a tax scammer.
There are three types of IRS Audits:
- Correspondence audit: conducted in writing via mail and no face-to-face meetings with an auditor.
- Office audit: conducted at an IRS office where you meet face-to-face with an auditor. This can last between two and four hours.
- Field audit: conducted at your place of business or records office where you meet face-to-face with an auditor. This can last a day or longer.
HOW TO SURVIVE
Now let’s see how to survive this audit –
- First, you need to study up on your taxpayer privacy rights
- Also, understand your taxpayer bill of rights
- Hopefully, your tax documents are already organized. But if your documents aren’t organized and you need more time to organize your records – request a postponement. The IRS will not deal with an unorganized mess, so be prepared, and ask for help if organization isn’t your thing!
- If you have a trusted representative or want one for the audit process, meet with them before your first interview or correspondence with the IRS. This will help you be prepared, discuss strategies, and expectations. Head to the IRS Public Directory if you don’t have a trusted representative. Side note: Attorneys, CPAs, and EAs can represent tax returns that they did not prepare.
- Organization is key. Be thoroughly prepared and organized. Normally, if your tax records support what you reported on your tax return, then the IRS agent won’t waste time conducting a more in-depth analysis.
- Also, only bring the tax documents that are requested in the IRS notice. Don’t volunteer information to the IRS agent. If you have a trusted representative let them respond to the IRS agent.
- When going through this process, keep a detailed record of all tax records submitted to the IRS agent and any questions asked.
- This should be common sense but be professional and courteous. The IRS agent is a person too, and this is just their job. They’re not out to get you, just simply doing their job.
- Most importantly, be honest. The top two priorities in dealing with tax returns and audits are honesty and organization.
- You have the right to be informed. The auditor will send you an examination report to conclude the audit. If you have any questions, don’t understand the report, or don’t agree with the report call the IRS agent with your questions or concerns.
- You also have the right to quality of service. So, if you think the IRS agent is treating you unfairly you can ask to speak to their supervisor.
- If you end up owing a tax bill that you cannot pay in full, you can apply for a payment plan (installment agreement). This is done by applying through the Online Payment Agreement Tool or by mailing a completed Form 9465, Installment Agreement Request.
Hopefully, this helps you remain calm, cool, and collected for your audit process! An IRS audit is not the end of the world, so don’t let it ruin your day.
Take action quickly to get it over with as fast as possible, and don’t be afraid to ask for help! Follow along for more tax tips!
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