How to Handle an IRS Audit & When to Get Expert Help

How to Handle an IRS Audit

You must file your official protest within 30 days of the date listed on the letter. You may want to consider appealing to the auditor’s manager, although this will not extend the 30-day deadline. The IRS understands that many taxpayers won’t agree with the findings of its auditors. Therefore, it has created a separate branch of service called the Office of Appeals, which consists of approximately 2,000 employees located nationwide. Most of them were auditors themselves, at one time, but are now senior employees in the IRS system, and they usually have legal or accounting experience. The very word can send shivers up the spine of even the most conservative taxpayer.

How to Handle an IRS Audit

Audit notices are usually mailed between 12 and 18 months after you file your return. Generally, if you haven’t heard from the IRS within 18 months, you won’t be audited. IRS audit notices are sent by first class mail and never by email or telephone contact. If you can, avoid a field exam, and consult a tax professional if the IRS wants you to host the audit.

Reporting a Net Loss for Consecutive Years

If it finds a significant understatement of income, it could look back at more years’ returns, but not more than the past six. Returns filed in the past two to three years get the most attention. A CPA’s failure to file a tax return is not an excuse the IRS accepts.

  • However, when matters are more technical or require interpretation of the law, it’s more likely you’ll need assistance.
  • In nearly all audits, the IRS may wish to conduct an in-person interview as part of your audit.
  • Tax returns with a large number of itemized deductions are likely to receive some scrutiny.
  • Every tax situation is different and an experienced attorney can provide tax audit help that will determine if relief is likely to be available in your matter.
  • Internal Revenue Service tax audits are on the decline, which reduces most taxpayers’ chances of being audited from slim to slimmer.
  • Pinpointing all the potential triggers of a tax audit is practically impossible.
  • Assuming that you were totally honest when filling out your tax return, your audit can likely be handled with relative ease.

Keep in mind that the agent is trained to zero in on tax issues. A comment you consider totally unrelated to your return might lead you into a thicket. Fear that taxpayers will talk themselves into trouble is the key reason many advisers recommend sending a representative to the audit rather than showing up in person. To try to cooperate with a civil tax investigation in a manner that is designed to avoid the start of a criminal tax investigation where possible.

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These records could include but are not limited to bills, receipts, legal documents, loan agreements, financial logs, and insurance documents. If the audit determines you owe additional taxes, the IRS Collection Process will begin. First, the agency will send you a bill, which will include the taxes owed, plus interest and penalties. If you still don’t pay, the IRS will begin collection proceedings.

  • If your tax filing includes transactions with other taxpayers, such as business partners or investors, and they were audited, you also may be audited.
  • When the IRS or state taxing authority has determined that a taxpayer should be audited, they will typically send notice of the audit through the mail and not through a surprise in-person interview or telephone call.
  • If you hire a tax pro to represent you, wait until your rep has time to review any document before you sign it.
  • This chapter deals with the types of IRS audits—both correspondence and face-to-face—that individuals and small business owners are most likely to face.

The more likely the return is to understate taxable income the higher the score the return receives. For you to be convicted of tax evasion, the IRS must be able to prove that you have an unpaid tax liability and that you intentionally took actions to evade taxes. This may include the filing of a false tax return, concealment of income, destruction of relevant records, keeping a double set of books, placing assets in the name of others, etc. If convicted, the tax fraud jail time you’re sentenced to can be no more than five years. The filing of a false tax return is considered to be fraud by the IRS and it’s a criminal offense.

Correspondence Audits

If you do end up owing more taxes and you don’t have the money readily available, you don’t have to pay immediately. You can set up a monthly payment plan with the IRS, or ask for an extension. If you are going through a financial hardship, the IRS offers other arrangements that may allow you to defer payment or settle.

  • As rare as audits are, the dreaded knock on the door from the IRS agent is even rarer.
  • The IRS often consider all aspects of the business and its owner(s).
  • Collection of unpaid taxes can include the IRS applying any tax refunds to your unpaid tax bill, garnishing your wages or seizing your property and assets.
  • In addition to penalties, you’re required to pay the additional taxes as well as the interest on those taxes.
  • If you are facing a tax audit, it is prudent to seek the profession and experienced guidance of a tax lawyer.
  • The result is an increase in IRS revenue collected and punishment for those who have violated tax law.
  • The IRS letter will request information it wants to examine, such as bank deposits or proof of expenses and deductions.
  • However, you will go to them in a local IRS office instead of the IRS employee coming to you.

(Internal Revenue Code §§ 7601 and 7602.) The IRS will investigate the items listed on an audit notice checklist given to you and scrutinize any other areas deemed questionable. And the law specifically places the audit burden on you to demonstrate that the information shown on your tax return is correct—think of the IRS as the Show-Me state of Missouri. If your dispute gets to court, however, the burden shifts to the IRS under certain conditions. If the audit is still alive on October 15, consider not filing until it is completed.

Can the IRS send you to jail?

It goes without saying that the art of negotiation is paramount in determining the results that you get from the hearing. Once you are in front of the officer, clearly articulate any errors you feel the auditor committed during the audit. However, do not badmouth either the auditor or the IRS no matter how much you may want to. According to recent IRS statistics, your chances of being audited increase substantially if your income is over $500,000 a year. Roughly 0.2% of individual filers who earned between $200,000 and $500,000 in 2019 (the most recent statistics from the IRS) were audited, but 0.6% of filers who earned between $500,000 and $1,000,000 were audited. The likelihood of being audited is highest in the highest income group.

Can you refuse an audit?

Here's what happens if you ignore an office audit:

The IRS will change your return, send a 90-day letter, and eventually start collecting on your tax bill. You'll also waive your appeal rights within the IRS. (You can't ignore IRS collection, either.

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