Chances are if you’re a taxpayer, you’re going to get audited at some point. Typically only 1% of all returns per year get audited, which is cold comfort if you’re the unlucky recipient of an audit notice from the IRS.
Regardless of your earning status, if the IRS sees enough “red flags” on your return, you’ll get audited.
Something as simple as a transposed Social Security number may flag your return for an audit. In other cases, the “red flags” are more complex.
What Will Trigger An Audit?
The following circumstances may place you at higher risk of an audit:
- Accessing retirement funds early
- Receving and depositing large sums of cash
- Home-based and/or cash businesses
- Claiming a hobby as a business
- Foreign investments
- Income property
How Am I Notified Of An Audit?
First and foremost, the IRS will NEVER contact you by phone or email regarding an audit or any other tax matter. If you do receive a phone call from someone stating they are from the IRS, hang up and report the call to local authorities and to the IRS.
That being said, you’ll receive a written notification from the IRS. The letter will arrive by certified mail, and will state your name, address, and other pertinent tax payer information, and will notify you that your returns for a given year have been selected for “examination” AKA an audit.
The IRS has individualized notices pertaining to the specific item in question on your return. It will state the reason for the audit and the course of action you’ll need to take.
What Happens Next?
In most instances, you’ll be subject to an correspondence audit. You’ll be asked to provide information that will confirm or correct information provided on your return.
The letter will clearly state which documents are needed. In some cases, you won’t need to follow up after sending the needed verification or documents.
It is important to provide the exact information requested by the IRS. Once you submit your documentation, the IRS will review it and advise you if you’ll need to take any further action.
You’ll then receive a notice stating the IRS’s findings, and whether or not you will owe any additional taxes based on the the new or updated information.
In some cases, you’ll need to meet with the IRS examiner (auditor) in person and bring with you the requested documentation. The good news is the letter will outline exactly what you’ll need to provide, and you’ll be given a timeframe in which to gather the documentation.
The meeting (audit) will typically take 3 hours or less.
Who Can Come With Me?
If you filed jointly, your spouse can join you in the meeting. You may also bring a licensed tax representative. If you have a power of attorney form on file, you won’t need to attend the meeting and your representative can act on your behalf.
Why Tax Representation Matters
Securing representation for an audit or other serious tax matter can save you time and money in the long run. A licensed tax professional is experienced in dealing with the IRS, either via correspondence or in person.
A licensed tax pro is well-versed in the latest tax regulations and will act in your best interest. Your tax pro will also understand IRS terminology and jargon. A tax pro can be a tax attorney, Enrolled Agent (an individual licensed directly by the IRS) or a CPA.
We Can Help
If you are facing an audit or other serious tax matter, we can help. Our team of Enrolled Agents, tax attorneys and case managers will work with you every step of the way. You won’t have to go it alone. Contact us today to schedule a consultation.