An audit by the IRS is a review or examination of the accounts and financial data of an individual or an organization in order to verify that the correct information is being reported. The audit also makes certain that the taxpayer has complied with tax laws, and that the correct amount of tax has been reported.
How Are the Tax Returns to Be Audited Selected?
The IRS has several different ways of choosing the returns that are to be audited. One such method is random selection and computer screening, in which the basis of selection is a statistical formula. The IRS may also try to match documents. If the payer records, including Forms W-2 and Forms 1099, are inconsistent with the information reported, then that may be reason for an audit. In addition, the IRS may decide to audit your return if it involves issues or transactions with other taxpayers, including business partners and investors, whose returns were chosen to be audited.
Where Does an Audit Take Place?
An audit may take place via mail, or it may happen through a face-to-fact interview and analysis of the taxpayer’s records. The interview could occur at any of the following locations:
- IRS office
- Taxpayer’s home
- Taxpayer’s place of business
- Accountant’s office
The IRS will inform you regarding which records you will have to produce for review. As a result of the audit, you may be required to amend your return. It is also possible that you may not need to make any changes to your return. If your account is chosen to be audited, the IRS will inform you via mail or telephone. In the event that you are notified via telephone, the IRS will send you a letter of confirmation concerning the audit. The IRS does not use email notification.
What Are My Rights During an Audit?
As a taxpayer, you have certain rights during an audit. These rights include:
- A right to be treated in a courteous and professional manner by IRS employees.
- A right to privacy as well as confidentiality concerning tax matters.
- A right to know the reason the IRS is requesting information, the way in which the IRS will use the information, and the consequences if the information is not provided.
- A right to representation, whether it be by yourself or someone authorized to represent you.
- A right to file an appeal of disputes, within the IRS and the court system.
How Long Is the Audit Process?
The length of the audit depends on the following factors:
- The kind of audit that is being conducted.
- The complexity of the documents to be reviewed.
- The accessibility of the information that is requested.
- The availability of each party for meetings to be scheduled.
- Whether you agree or disagree with the findings of the audit.
The IRS will send you a written request for the documents that are necessary to conduct an audit. By law, you are required to retain records that were used in the preparation of your return. You should keep those records for three years from the date on which your tax return was filed.
What Types of Records Does the IRS Accept?
The IRS also accepts electronic records. If you keep records electronically, the IRS may request that you produce such records instead of or in addition to other kinds of records. It is advisable for you to contact your auditor in order to make certain that any electronic records you provide to the IRS are in a software program that is compatible with that of the IRS.
Conclusion of an Audit
There are three ways in which an audit can be concluded:
- An audit may result in no change. This means that you have corroborated all of the documents being reviewed, and there are no changes.
- An audit may result in your agreement with the proposed changes by the IRS.
- An audit may result in your disagreement with proposed changes by the IRS.
If you are in agreement with the audit findings, then you will be requested to sign an examination report or comparable form. If you do not agree with the audit findings, then you may request a conference with a manager to further review the issues. You may also file an appeal.
Should I Consult an Attorney?
If you are going to be audited, you should consult a tax attorney. A qualified tax lawyer can help you prepare for, and represent you during, the audit.