While many American worry that they will be audited by the Internal Revenue Service (IRS) after they file their taxes each year, the truth is that the number of IRS tax audits has declined dramatically over the years. In 2017, less than 1 out of every 167 returns was audited.1 For taxpayers who earn $25,000 to $200,000 the audit rate is less than 0.5 percent, or 1 in 200.2
One group that does get audited more frequently is those who earn less than $25,000, as they often claim the earned income tax credit and the IRS works diligently to ensure that the credit is not claimed fraudulently.
How do IRS Tax Audits work, what do they entail and what do you do?
It is important that taxpayers know that the IRS never conducts tax audits over the phone.3 The IRS will always notify you of a tax audit by mail. In that mailing to you, the IRS will explain what type of audit they will conduct.
There are two types of audits: an in-person interview and an audit by mail. If the IRS requests an in-person interview it will either be done at an IRS office or at the taxpayer’s home, place of business or accountant’s office. The most common type of IRS audit is an audit by mail. The IRS notice of an audit by mail will request certain additional information about items on your tax return, such as income, expenses and itemized deductions.
The IRS conducts three out of four audits by mail. You must move quickly to gather and mail the necessary documentation so that you allow enough time for the IRS to process the documents you mail. If your deadline is coming up, fax a written request for an extension to the number shown on the IRS letter you received. If you aren’t able to fax the IRS, mail your request to the address shown on the IRS letter. The IRS can usually grant you an automatic 30-day extension.
If the IRS doesn’t receive your response by the due date, because it wasn’t mailed in time, or processed in time, or was lost in the mail, the IRS will issue a legal notice called a Statutory Notice of Deficiency which will indicate a balance due the IRS. That notice gives you 90 days to petition the U.S. Tax Court to review your case.
In addition to following the mail audit instructions provided by the IRS, some additional tips for responding to an audit by mail include the following:
• When you mail your response always request that your carrier (US Postal Service, FedEx, UPS, etc.) provide you with a confirmation that the IRS received it, which includes the date on which the IRS received your information.
• Don’t send original documents. Send copies only.
• Add page numbers (“Page ____ of _____”) and your name and social security number on each page of the documents you send to the IRS.
• If you have questions, mail audit instructions include a toll-free number to contact the IRS. If a specific employee is working your case, it will show a specific phone number to reach that employee or department manager.
• If you need to talk with the IRS, the best days to call are Tuesday through Thursday, and the best time to call is in the early morning.
• If you can’t provide verification of an amount claimed (such as a receipt), you should still provide a detailed explanation on how the amount was determined.
• When you call the IRS, write down the IRS representative’s name and badge number and what was said during the call.
Overall, the best advice is to respond quickly to an IRS audit notification and to follow the IRS instructions exactly. Once the IRS receives your information, they will contact you by mail to inform you of their audit conclusions.4 If you have provided good supporting documentation, they will accept your original tax return as filed. If they do not agree with your supporting documentation, they may propose an adjustment to your return.
If you do not agree with the IRS’ proposed adjustment to your tax return, there is a formal process to further discuss your return with IRS representatives. The worst thing you can do is to ignore an IRS audit request. If you do not respond, additional tax could be assessed.
If you are not sure how to go about responding to an IRS audit request, contact a trusted Tax Attorney. This is not only wise, it is your right.
The Tax Resolution Law Firm in Detroit MI is a full-service tax dispute law firm that can help. With over 20 years’ experience, attorney Peter C. Rageas has the knowledge and expertise to protect your rights. Resolving your tax issues requires immediate action and if you have received notice of an IRS Audit it is your right to have legal representation. You don’t have to go through an audit alone, let our experienced Michigan Tax Attorneys represent your case. Contact us at 313-315-2272 to learn more.
1,2 What Are the Chances of Being Audited? by Stephen Fishman, J.D., www.nolo.com
3 IRS Audits, www.irs.gov
4 Audits by Mail, www.taxpayeradvocate.irs.gov