What Really Happens During an IRS Tax Audit

The Internal Revenue Service (IRS) has a solemn responsibility: to make sure that taxpayers are meeting their obligations by ensuring they are paying the correct amount of taxes. To this end, the IRS audits the returns of certain taxpayers to check that the information is accurate and that no taxes have been underreported. As part of their auditing procedures, the IRS may contact taxpayers and ask them to provide documentation to support the claims they made on their return. This is what happens during a tax audit.

What Is an IRS Tax Audit?

An IRS tax audit is a thorough review of a taxpayer’s financial records by an IRS agent. This process is designed to check that the income and deductions reported on tax returns are accurate and that all taxes have been paid in full. During the audit, the IRS agent will review the taxpayer’s income documents (W-2, 1099, etc.), expenses, and other relevant documents.

Who Gets Tax Audited?

The IRS is more likely to audit taxpayers who appear to have made errors on their returns or have had a large increase in income from the previous year. Taxpayers who claim deductions for large amounts of charitable donations or business expenses are also likely to get audited.

Types of Tax Audits

The IRS typically conducts three types of audits:

  1. Correspondence audits – This type of audit is done by mail, and the taxpayer responds with the requested documents within the requested timeframe.

  2. Office audits – An IRS agent will call the taxpayer to arrange an appointment at a local IRS office. During the office audit, the agent will review documents and ask questions about the return.

  3. Field audits – This is the most serious type of audit, where the agent will go to the taxpayer’s home or place of business and audit the financial records on the spot.

How to Prepare for an IRS Tax Audit

If you receive a letter from the IRS notifying you of an upcoming audit, you’ll want to be prepared. Here are a few steps you should take:

  1. Gather all relevant documents. Make sure to collect any documents related to the audit, including income, expense, receipts, bank and credit card statements, etc.

  2. Contact your tax preparer. If you had your return prepared by a professional, reach out to them and ask for advice on how to best handle the audit. They will be able to walk you through the process and provide guidance.

  3. Take notes. Write down any questions the auditor asks, your answers, and anything else that is discussed.

  4. Don’t guess or estimate. If you don’t know the answer to a question, it’s best to say that you don’t know. Don’t guess or estimate, as the auditor may hold you accountable for the accuracy of the answer.

  5. Have a witness present. You can have an individual with you during the audit if you feel it necessary. Your tax preparer can also be present to answer any questions and provide needed documents.

What Happens During an Audit

Understanding what happens during an IRS tax audit can help put your mind at ease. Here’s what to expect if you’re selected for an audit:

  1. You’ll receive a letter. You will receive a letter from the IRS notifying you that you’ve been chosen for an audit. This letter will outline the type of audit, what documents are needed, and when the auditor expects the documents to be received.

  2. A representative will contact you. If you’ve been chosen for a correspondence audit, you’ll be given instructions on how to submit the requested documents. If you’ve been chosen for an office or field audit, the auditor will contact you and arrange a meeting.

  3. The auditor will review your documents. During the audit, the auditor will review the information on your tax return and ask about any deductions or income that you’ve reported.

  4. The auditor will make a decision. After reviewing your documents, the auditor will make a determination on whether you owe additional taxes, or whether you’ll receive a refund or credit.

  5. Appeal the decision. If you disagree with the outcome of the audit, you can appeal the decision within 30 days by filing a form with the IRS.

What if I Don’t Cooperate with an IRS Audit?

If you don’t cooperate with an IRS audit, it can result in serious consequences. You could face penalties and fines, and depending on the severity of your case, the IRS could even refer it to the Department of Justice. It’s best to cooperate with the audit and follow the instructions given by the auditor.

An IRS audit can be a daunting experience. By understanding what happens during an audit and preparing yourself with the necessary documents, you can make the process as stress-free as possible. Above all, it’s important to cooperate with the auditor and follow the instructions given. With the right preparation and attitude, you can meet your IRS obligations successfully.

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