In actuality, the chance of most people getting audited is fairly slim.
Many tax professionals are reporting that fewer of their clients have
received notices this year than ever before. If you are one of the
unlucky few chosen to get up and personal with the IRS, do not panic!
There is a chance that you are one of the 10,000 taxpayers who have been
chosen at random to be audited in order to help the IRS identify common
trouble spots and areas of mistake on tax forms. Audits may also be
generated when a business that has sent in tax information on you or the
IRS makes a mistake regarding your tax return. On the downside, you are
statistically more likely to wind up owing the IRS additional taxes
after your audit. Only 12% of people audited walk away unscathed with
their returns intact.
There are three
types of audits that you may be subjected to, field audits, office
audits and correspondence audits. Field audits focus predominantly on
business returns and are held at the taxpayer's place of business.
Filer's of a 1040 Schedule C are the usual victims of this type of
audit. Be prepared to have to verify travel and entertaining expenses,
gifts, total income, automobile expenses, even the source of every
deposit into your bank account! Field agents have a great deal of
freedom in what items they choose and how deeply they examine them. If
it is revealed in your audit that you are indebt of additional taxes to
the IRS, expect to have your subsequent year's returns audited next.
An office audit is
held at IRS headquarters. You will receive a number 904 notice informing
you of the date of the audit as well as the items they are interested in
reviewing. If you cannot make this date, don't fret. You are entitled to
two postponements. Office audits greatest concerns are usually itemized
deductions, such as medical expenses, charitable contributions and
deductions for personal exemptions. If the auditor establishes that
there is a probability that you didn't report all income, you will
receive a Form 4822 Statement of Annual Estimated Personal and Family
Expenses. The purpose of this form is to acquaint the IRS with your
lifestyle and all of your expenses. It's a lot easier for you to wind up
owing additional taxes when agents examine your sources of income as
opposed to your deductions. So be careful!
The final type of
audit, a correspondence audit, takes place completely by mail. The least
stressful of all audits discussed, you cannot be caught off guard by
probing questions and inquiries. In addition, these audits are usually
limited to a few key areas of your tax return. As long as you cooperate
fully with the IRS in providing details of your claims, you can request
to have your audit conducting in this manner. If you feel that your
explanations are too complicated or require detailed explanation, you
may request a meeting with an IRS auditor in person.
Here are a few
helpful tips to follow when time of your audit arrives.
Never send your
original documents! Copies will always suffice.
Familiarize
yourself with the return in question. Organize and prepare!
Gather as much
evidence to support your claim as possible.
You do not have
to attend your audit! You may elect to have an enrolled agent,
attorney or CPA represent you, especially if the issues at hand are
complicated.
Treat your
auditor respectfully. Be professional and even-tempered. State your
case if you disagree with the auditor, but do not argue. It will
serve you no purpose and it will give him/her a reason to look for
additional tax money.
Never volunteer
information or bring additional paperwork related to issues other
than the ones in question. You don't want to open the door for them
to find more reasons to make you pay!
Don't be
intimidated. If you disagree with the outcome, you have the right to
appeal. You may be interested to know that citizens who take
advantage of their right to appeal win 60-90% of the time! We like
those odds.
TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE
IRS, WE INFORM YOU THAT ANY TAX ADVICE CONTAINED IN THIS COMMUNICATION
(INCLUDING ANY ATTACHMENTS) WAS NOT INTENDED OR WRITTEN TO BE USED, AND
CANNOT BE USED, FOR THE PURPOSE OF (1) AVOIDING TAX RELATED PENALTIES
UNDER THE INTERNAL REVENUE CODE OR (2) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
