What Should I Do If I Am Audited?

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What Is an IRS Audit?

An IRS audit is a review or examination of a business', organization's, or individual's accounts and financial information to determine whether the person has been reporting the required information correctly under the federal tax laws and to verify whether the amount that has been reported for tax purposes are accurate.

When the IRS selects a person or an organization to audit, it does not always mean that an error has been made or found. Sometimes, audits are selected using a variety of methods:

What Should I Do If I Am Audited?

If you receive an audit letter from the IRS, do not panic. Here are some things you can do to prepare for an IRS audit:

What Are My Chances of Being Audited?

A small number of individual tax returns are audited each year. Computer programs select which to audit by developing norms after reviewing millions of tax returns. If a tax return differs significantly from the norm, there is a greater chance that it will be audited.

The most common ways that a person will be red flagged for an audit or a personal return would come to the attention of the IRS include:

An audit red flag does not mean that the IRS would automatically audit a person. When a person’s tax returns is brought to the attention of the IRS, it means that the person’s information and reported returns will now be turned over to an actual human for examination and review. If the person determines that suspicious activity exists in the person’s tax returns, an audit will be scheduled.

What Are My Rights During an Audit?

Taxpayers have several rights during an audit examination, appeal, collection, and refund process. These rights include:

If an audit error has been found, a conference will be set up and a manager will be assigned to the case for further review or the issue or issues. If the person disagrees with the audit findings, the person has the right to appeal and may take the case to an appeal mediation program or file an appeal request.

What If I Made an Honest Mistake on My Tax Return?

The IRS might drop the tax penalty if you can show that you made an honest mistake in preparing your tax return. If you have made a mistake, you should prepare a letter explaining the mistake.

What Are the Different Types of Audits?

You may be faced with different types of audits.

Should I Consult an Attorney If I Am Audited?

Tax law is very specialized and involves many different issues. To avoid spending too much time and money, it may be a good idea to consult a tax attorney to help you prepare for an audit.

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Last Modified: 11-19-2014 03:54 PM PST

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