Posted by CONTINENTAL TAX AND ACCOUNTING SERVICES

How to handle an IRS Audit

How to handle an IRS Audit

The IRS uses new technologies to process tax returns and tax audits. As more and more users send returns electronically, the IRS improves the efficiency of processing returns. They additionally have more data in their system to distinguish tax returns with non-compliance issues. The IRS uses a system to select the audit, which will support efforts to reduce the country's financial gap. The difference in tax is the difference between what taxpayers should pay and what they paid on time. Current workload plans combine results over three years and allow the IRS to update compliance estimates and produce more efficient load plans each year.

Reasons why the IRS can contact you

Taxpayers should understand that a check does not imply suspicion of criminal activity. Tax returns are complex documents containing financial data that must be evaluated to confirm their accuracy. The process is called an audit and does not imply that you made an intentional error. The IRS communicates with people for several reasons.

Taxpayers are selected through a process of "random selection and computerized selection," according to the IRS, which is based on a mathematical formula. The IRS compares the tax returns with "rules" for similar returns. If your statement does not follow the "rules," you can be chosen for a check. If your tax statement includes transactions with other taxpayers, such as investors or business partners, and you have been verified, you can be audited.

Some returns are chosen based on other factors, such as reported earnings or unusual deductions.

IRS audit, at a glance:

  • IRS audits are rare. IRS makes the majority by mail. A complete and timely response is essential.
  • IRS face-to-face audits are the most spoiled of all. It is essential to review the records in detail and prepare for the interview.
  • The determination of an IRS agent in an audit is not final. You have the right to appeal.
  • You can get help from an expert, and even your tax advisor will represent you in an IRS audit.

Things to know about IRS audits

If the IRS audits your income tax return, the IRS will carefully review your statement to see if it includes all your income and only accept the deductions and credits allowed by law.

The IRS selects the most likely returns of error based on multiple criteria. After filing a return, the IRS generally has three years from the start and the end of an audit. The IRS initiates most tax audits in the year following the return and performs the majority of audits in less than a year.

IRS audits returns in three different ways:

  • By Mail (Check Mail)
  • In an IRS Office (Office Or Audit Office)
  • Personally, at Home or Company (Field Audit)

During an audit, the IRS will request information and documents explaining your position on the tax return. Providing the information requested by the IRS is essential. If you have a licensed professional who manages the audit, you help tax practitioners with the facts and your tax professionals will work with the IRS.

Steps to follow if selected for audits

Establish ground rules: Be sure to inform the client of the procedures that accompany an IRS audit.

Determine where the IRS auditor will work: In the absence of a commercial site for an individual refund, the audit will be conducted at the IRS office. If the audit involves a company, the IRS agent will probably want to do it within the company. However, the tax office is the best place to conduct the audit. You can better control the information provided to the auditor when the auditor arrives at your office.

Determine who will talk to the taxpayer: IRS agents can change any informal conversation with the taxpayer. It is therefore vital that the taxpayer and the auditor are not in direct communication with each other. In this way, you are responsible for the information communicated between your client and the agent.

Make sure all requests for documents are submitted in writing: Make sure the IRS agent understands that any request for documents must be submitted in writing so that you have enough time to gather the data needed to support your deduction claim.

Problems and discussions about adjustments should not be negotiated before the final conference: When you ask questions until the last meeting, this will put you in a better negotiating position because you will better understand the IRS control and the information you need. This will also eliminate the possibility for an auditor to solve certain problems if he is pushed over time.

Accept an extension: If you have not collected all the information required for the audit but consider having access to it, you can agree to an extension. 

Refusal to accept an extension: You do not have to accept an extension if the IRS has not solved all the problems properly and you want to close the case. This will require the IRS auditor to report. Therefore, it is possible to appeal to the tax court or pay the tax, and then go to the court of appeal.

Request technical assistance: You can always seek technical advice from the IRS National Office if you think the IRS Appeals Officer is not engaged and your position is opposed to the National Office. If the National Office agrees with inconsistent views, the Appeals Officer will have to follow the National Office. If the national office does not accept your application, you must continue to act before the judiciary.

Negotiate: Agree to resolve the situation correctly as some areas of tax law are subjective. In some cases of various problems, you can send a final offer that could change depending on future issues.

Consider submitting cash back or deposit: The best method to avoid the Internal Revenue Service (IRS) audits is to work with the client to ensure that the tax return has no reason to be verified by the IRS. IRS audits are rare. 

How to protect yourself in the situation of an audit

Keep all the documentation to prepare for a possible audit. Here are some fundamental steps to keep your records in order:

  • Maintain tax returns and documents for three years.
  • Save the files from your checkbook.
  • Organize receipts after major purchase date.
  • Store invoices in folders.
  • Record and keep proof of the deductible information.
  • Keep your tax documents in one place.

Conclusion

In addition to knowing where all your documents are, take the initiative to compare the tax debt to the national average in the workplace. Having an idea of how much taxes you have to pay can help you determine if your taxes are being paid correctly. Sometimes the accuracy of double checking can help avoid long and occasionally expensive processes.

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