Everyone dreads a letter from the IRS. While your first reaction may be to panic, many audits can be resolved fairly easily. The first step is to figure out what exactly the IRS wants from you. A letter from the IRS does not always mean you are being audited. The IRS may just need more clarification or information. Try to determine what part of your return is being audited. The IRS usually audits a portion of the return and not the entire return.
You should assume the IRS has access to all your information. For example, your total wages earned and your mortgage interest are probably all known to the IRS because these documents are usually provided to you as well as a copy to the IRS. However, for self-employed individuals and the wealthy, many items on a return tend are self-reported, such as income.
It is important to review your returns for accuracy and only provided the information the IRS specifically ask for to avoid opening the scope of the audit.
There are three types of IRS audits:
- Correspondence Audit
- Field Audit
- In-Office Audit
Tax returns can be audited for up to three (3) years. One caveat is that if a fraud has been committed, there is no statute of limitations. They can be audited any time! So be sure to keep your tax documentation for at least three (3) years.
This is the most common type of audit. The IRS will send you a letter indicating a discrepancy on your return. Some common items are unreported 1099 or W2 income, or a healthcare coverage discrepancy. Whatever the discrepancy, you will need to provide additional information. This may result in more money owed or, quite possibly, a larger refund. It is very important to respond by the due date to avoid further action by the IRS.
This type of audit is normally reserved for businesses and is not very common for individual taxpayers. During a field audit, the IRS will send a group of auditors to your business to examine your books and/or documentation. It is important to have current, reconciled bank statements, profit and loss statements and balance sheets, with all receipts and mileage logs. Remember, you will need to have at least three (3) years of records.
An in-office audit will require you to take your tax return documentation to an IRS office to prove your tax return information is valid and all deductions and expenses are backed up by receipts. The burden of proof rests on YOU, the taxpayer.
If you are experiencing an IRS audit, don’t go at it alone. Edgar and Edgar CPAs can assist you and/or represent you during an IRS audit. For more information, please click to Request a Case Review, fill out your information and submit. A tax professional will review your case and contact you. You may also call our office at (281) 306-0066.