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Tax Audits: What You Need to Know

The words tax audit strike fear into adults all over the country. That fear is largely due to the term being recognized but the process being an unknown. With that in mind, we created a guide to tax audits to take some of the unknown and, therefore, the fear out of tax audits.

How Will You Be Notified of An Audit?

You should be aware that people get scammed by others who want to steal personal information daily. To prevent that from happening to you, it’s essential to know how the IRS will notify you in the event of an audit. They will not call or email you. Instead, you will receive notice in the mail.

Your notice will include relevant contact information as well as details regarding the information you need to gather. It will also provide you with information regarding how the IRS intends to conduct your audit.

How the IRS Conducts Audits

Audits are conducted either by mail or inperson. If the IRS deems a mail audit appropriate, your initial letter will provide you with the data they need to complete your audit successfully. It will also provide you with the deadline for returning the information to them. If you need more time or your documentation is too much to return by mail, you can request an in-person audit instead of an audit by mail.

For in-person audits, you can expect them to be held in one of four places.

  1. At the IRS office. This is called an office audit, and you will meet the auditor in the IRS offices nearest to you.
  2. At your home. The auditor can come to your home and interview you there. In some ways, this is easier for you as all of your records are already there.
  3. At your place of business. The auditor can come there if you are being audited for your business. Again, unless you use an accountant outside your business, your records should be readily available for the process.
  4. At an accountant’s office. This is called a field audit. Typically, this kind of audit is saved for the most complicated tax cases.

What About Extensions?

If you need an extension, you may request one. If your audit is being conducted by mail, you must fax or mail a written request to the contact information in your initial letter. Barring complications, the IRS can typically grant a one-time extension of 30 days. The exception to this is if you’ve received a certified “Notice of Deficiency”; the IRS can work with you on tax debt but cannot give you more time to gather documents.

If your audit is in-person, contact the auditor assigned to your case to request any extension you might need. You may also contact the auditor’s manager if you aren’t getting anywhere with your auditor.

Reasons You Could Be Flagged for Audit

The IRS says that an audit is just a review of your information to ensure everything is reported correctly according to the tax law. Some audits are just random occurrences, but there are some people or behaviors that raise a red flag with the IRS. Since audits trigger fear in most adults, let’s look at the mistakes that can flag your returns for audit.

  • Missing or mismatched paperwork. This can be as simple as missing one form. So, it’s essential to take your time with your taxes rather than rushing through and causing mistakes.
  • A math or data entry error. Simple math errors don’t always trigger an audit, but they cause the IRS to look over your taxes carefully. Even transposing numbers in your address can cause the IRS to look at your return again.
  • Being self-employed. The tip here is to save all your receipts to back up any deductions you claim.
  • Making a lot or no money. If you have no positive income, the IRS will want to know why, and if you make an extraordinary amount, they will want to verify your numbers.

These are only a few things that can raise a red flag with the IRS, but they are simple things you can easily avoid if you take care of your tax forms.

Final Thoughts

Audits can be scary, especially if you don’t know what to expect. Most audits are completed relatively quickly—within less than a year. If you’re facing an audit, contact the professionals at Guardian Tax Law to learn what your rights and responsibilities are.