The IRS conducts tax audits to minimize the “tax gap” or the difference between what is owed to the IRS and what the IRS actually receives. Sometimes an IRS audit is random, but the IRS often selects taxpayers based on suspicious activity. The IRS administers audits by mail or through an in-person interview to review your records. The interview can be conducted at an IRS office (office audit) or at the home, establishment, or office of the taxpayer's accountant (field audit).
Remember that we will initially contact you by mail. The IRS will provide you with all the contact information and instructions in the letter you will receive. You just found out about the 9 main triggers for IRS audits. Old brokerage accounts are generally overlooked, as are Form 1099 and distributions from a college savings account to pay tuition.
When the IRS audits your return, the IRS basically seeks to see if you correctly reported your information and paid the correct amount of taxes. If you look at it another way, it's just another level of review by the IRS, with the goal of keeping the entire system fair. The duration varies depending on the type of audit, the complexity of the issues, the availability of the information requested, the availability of both parties to schedule the meetings, and their agreement or disagreement with the findings. Unfortunately, the IRS tends to screen self-employed people, especially if you don't report a profit for at least three out of five years.
Learn what the IRS is looking for during a business tax audit, the steps you should take to prepare for an IRS audit, and when it's best to get expert help. Even if you're sure everything is correct and you have supporting documents for everything that appears on your return, the hassle of going through an IRS audit causes a rift in your life until it's over. Banks are required to report deposits in amounts below the threshold if they can indicate illegal activity. During an audit, the IRS will ask you for information and documents that explain your position on your tax return.
Read H&R Block's guide to the types of IRS installment agreements and how to determine which one is right for you. You may not be able to avoid an audit, depending on your circumstances, but if you are careful about completing your return each year, your chances of having an audit done will decrease. The IRS won't waste its time on an audit unless agents are reasonably certain that the taxpayer owes additional taxes, and there's a good chance that the IRS can collect that money. After filing a return, the IRS generally has three years from that time to start and finish an audit.
However, you should be able to document why these changes occurred, such as a temporary disability or a new business environment. If your revenues suddenly skyrocket or plummet by a suspiciously large amount compared to the previous fiscal year, the IRS is more likely to examine your records. Tax Shark's tax professionals have decades of experience in auditing representation and tax resolution services. If you are a shareholder in a corporation, the IRS can compare your tax return with the one filed by the corporation to ensure that the returns are consistent.
Find out how much time the IRS has to audit your return, when most audits normally begin, and how to know if you've been selected for the audit.