While it is very unlikely that the United States Internal Revenue Service (IRS) will audit your income tax return, it is possible. In 2017, the IRS audited only one in every 161 income tax returns.1 Because the IRS doesn’t have a lot of budget dollars to do audits, it is likely that they will audit even less for the 2018 tax year. But, if you are one of the unlucky taxpayers who receives an IRS audit notice, a basic understanding of the IRS audit process is important for you to successfully navigate the IRS system.
What should I expect with an IRS Audit?
The IRS will only contact you by mail to let you know that your income tax is being audited. If you receive a call on the phone asking for information, it may be someone trying to steal your identity, so you should not provide any information such as your social security number or birthdate, to anyone calling and saying they are from the Internal Revenue Service.
There are three ways that the IRS conducts audits of income tax returns. The first is a correspondence audit, which is done entirely by mail. The second is an office or desk audit, where you will be asked to come to an IRS office to answer questions about your income tax return. The third, and the rarest of all, is a field audit where an IRS agent or agents will come to your home or business. Generally the IRS has three years from the date that you file your income tax return in which to initiate an audit. The IRS starts most tax audits within a year after you file your return.
The notice you receive from the IRS, informing you of the audit will contain information on which type of audit they are conducting and what you have to do to comply with the audit requirements. In other words, your notice will instruct you on how and when to present your records. If the audit is to be by mail, the IRS will tell you what documents they require from you.2 These are the same documents you, or your tax preparer, would have used to prepare your tax return. IRS mail audits are generally focused on a few specific items on your return. Prepare a complete response to the items the IRS is questioning in the letter/document that you received in the mail. If you hired someone to prepare your taxes, you may wish to seek their help on how to respond to the IRS request for information or documents.
Organizing the records you send or bring the IRS will speed the process and prevent errors or misunderstandings.3 The IRS recommends that you organize them by year and type of income or expense, and include a summary of transactions. The IRS will also provide you with the address where you should mail the requested records. Make copies and send the copies of your documents. Never send the IRS the originals of any documents. If the IRS is conducting the audit in person, bring the original records with you. Make sure that you respond to the IRS deadline or deadlines on time. Do not ignore a written request for documents or information which you receive via mail from the IRS.
The IRS will close the audit after receiving your documents and information and they will either propose an adjustment to your tax return or they will let the tax return stand as it was submitted. You will get a written report of the IRS findings. In this letter they will also tell you about your rights to appeal the IRS decision if you disagree with their findings. You have 30 days to appeal.
The IRS publication 556, Examination of Returns, Appeal Rights, and Claims for Refund,4 contains a host of helpful information on IRS tax audits. If you are unsure of how to respond to an IRS audit request, you should seek the help of a tax preparer or a tax lawyer.
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 a 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 How Do IRS Audits Work? Barbara Weltman, Investopedia Taxes, 10/27/18
2, 3 U.S. Internal Revenue Service, IRS Audits: Records We Might Request
4 U.S. Internal Revenue Service, Publication 556, Examination of Returns, Appeal Rights and Claims for Refund