You just received a notice that your taxes are being audited: what does this mean?
An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct. If you prove that your initial return was complete and correct, you would not be asked anything further. However, if the IRS finds errors or purposeful misreporting, you will have to pay the recalculated return amount AND any interest penalties.
If you receive an audit notice, here are the steps you can take to quickly resolve the situation.
While the IRS is supposed to tell you why your return was selected, it is up to you to ask. Your taxes can be audited for a variety of reasons: specific activity on your return, such as cash wages, 1099 and W-2 forms that do not match your reporting, high deductions relative to your income, reports inconsistent with previous years, random selection, or automatic flags, where computer programs find outlying “scores” on returns.
All IRS notices or letters contain a notice number in the upper right-hand corner. These numbers will further inform you about the specific issues with your tax return. Once you know what you are being audited for, you can narrow your focus and start gathering relevant documents.
You will probably have at least a couple of weeks to prepare. If the appointment is set for an inconvenient time or you find that you will need extra time to pull your records together, call the IRS as soon as possible to request that the audit be rescheduled.
There are different types of tax audits, each with their own requirements. Knowing how you are being audited will help you determine what documents you need, where to send them, and whether you need a tax advisor.
Once you know what is expected of you, you can start going through your records to find the relevant receipts and documents. Never send in your original documents or your only copy, and never send in more than is requested. If you cannot find relevant documentation, immediately request duplicates, since the auditors would not accept the excuse that records are missing or lost.
Once you have all your copies and originals, get them organized, especially if you are facing an in-person audit-good organization shows the agent that you are a responsible taxpayer, and may result in the agent limiting the scope of their investigation.
After you have sent in the necessary paperwork or met with an IRS agent, you can expect one of four outcomes:
A tax audit may seem like the end of the world, but overall, an audit is much less frightening than you would think.
With an experienced tax advisor in your corner to mediate on your behalf and navigate you through the entire process, you can save yourself a heap of stress. Contact us for more information or to setup a consultation.
Author: Valentina Efremova
Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.