Posted by Abundant Wealth Planning LLC

What to Expect During an IRS Audit

What to Expect During an IRS Audit

While the chances of being audited are slim, there is a possibility. The higher your income, the higher the probability of getting an audit. Many people dread an IRS audit; however, it is not a death sentence. 

This article is a tool to prepare your mind in case the IRS picks you for its audit. 

Possible Reasons you were selected. 

Here are the most common reasons the IRS selected you

  • Failure to report items like bank interest, sale of a mutual fund, or W2 wages.

  • The probability of your return having an error is high.

  • Your return came with deductions that are large, unusual, and questionable.


Preparing for an IRS Audit

You are best prepared for an IRS audit way before the process. This is where due diligence comes in. You have to keep all correspondence and records you used to make the return. 

An IRS audit comes in various forms, and it could be three types: a correspondence, office, or field audit. 

Correspondence Audit: The simplest of the IRS audit. It focuses on simple issues like omitted income, unusual deductions, etc.

Office Audit: Involves a scheduled appointment and done by Revenue Agents. They are less complicated, as well.

Field Audit: A pretty comprehensive audit which involves an in-person interview of the business.

You will have to supply some data to the auditor on a form known as Information Document Request or in IRS verbiage, and “IDR.” be sure to provide the requested information by the required date.

Whenever the audit ends, there will be an audit report (Revenue Agent Report {RAR}). There will be a detail on the proposed tax changes alongside additional tax due. 


HANDLING THE AUDITOR

In handling an IRS audit, you are better off leaving it to a professional. You need a tax professional with expertise in IRS practice, audit, and procedure. You need an expert that can handle every aspect of an audit, including meeting the agents at the fields, responding to interviews, dealing with audit issues, and addressing tax changes in your return. 

Considering the Taxpayers Bill of Rights, you are under no obligation to attend an IRS interview as long as you have enlisted an authorized representative to stand in for you. This only changes if there is a summon. Uncle Sam, most times, does not use these tactics; hence you are better off with an authorized representative.

Challenging IRS Audits

The IRS audit is not the final say. If you feel the auditor's findings are not right, there are four methods with which you can dispute the situation. The following point sheds light on each end:


  1. Conference With The Auditor’s Manager

This is the most straightforward approach to resolving any issue with the auditor's finding. You can simply make an informal request via a phone call to the audit manager. There is a high chance of success with this as long as the auditor is unreasonable concerning the taxpayer's issue. 

In a situation when you fail to achieve your goal by contacting the manager, you can consider other administrative channels. With this, you can file an appeal with the IRS. 

  1.  Fast Track Settlement Process

This is a new program that Uncle Sam developed. It is like a mediation conference where the IRS consults an Appeal Officer that meets with the IRS auditor, the taxpayer involved, and the concerned auditor manager in a bid to find a solution and reach a resolution. 

  1. Formal Protest Involving the IRS Appeals Division 

In cases when the IRS and the taxpayer failed to come to a reasonable compromise with the Fast Track process, there is an opportunity to file a formal protest with the IRS Appeals division. It is a pretty long process and could require someone with adequate knowledge in IRS controversy to compose the protest and be present in the appeal conference

  1. Allow a Court to Settle the Dispute

In cases when every attempt to settle the issue proved abortive, taking the dispute to court is another option. The tax court is the primary venue for such cases, taking care of numerous tax cases all year round. 

While a taxpayer can represent himself in court, the best call is to choose a skilled tax professional to stand for them in court.


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