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65. Why the IRS Audits You and What to Do if You Are Audited?

If you just received a notice that your taxes are being audited: what does it mean?

A Tax Audit is an accounting procedure where the IRS examines your individual or business financial records. If you prove that your initial return was complete and correct, you won’t be asked anything further, but if the IRS finds errors or purposeful misreporting, you will have to pay the recalculated return amount and any penalties.

The IRS is supposed to tell you why your return was selected for an audit. Your taxes can be audited for a variety of reasons, including:

  • Specific activity on your return, such as cash wages, 1099 and W-2 forms that don’t match your reporting, high deductions relative to your income, reports inconsistent with previous years, etc.

  • Related examinations, where your report involves transactions with someone else being audited

  • Automatic flags, where computer programs find outlying “scores” on returns (for example: above average withholding)

  • Random selection

There are three basic types of audits

  • Correspondence Audits: this is the simplest and usually happens when you have made a mistake on your tax return, like a typo.

  • Office Audits: the office audit is a little more complicated. You are required to go into an IRS office with the required paperwork. An office audit might happen if you have a high tax deduction: a medical expense, for example.

  • Field Audit: a field audit is sort of like an office audit, but the IRS comes to you. They visit your home or business and ask to see your records. According to the IRS, you can request to transfer a field audit to an IRS office, but there’s no guarantee you’ll be granted that favor.

If you are audited, the IRS will send you a letter or perhaps even give you a call.

They will never email you. As a rule, if you get an email from the IRS, there is a good chance it is a scam. And if the IRS does call, they will also send a letter in the mail.

The letter will tell you what kind of audit you are dealing with and what specific records the IRS needs. The IRS will also give you a deadline for mailing in your updated records. However, with a field or office audit, you will have to schedule a time to meet, usually within a few weeks.

Gather your Documents

Once you know what is expected of you, you can start going to find the relevant receipts and documents. Never send your original documents, only copies. In some cases, the IRS might accept electronic copies. And never send in more than is requested.

Your audit letter should include a list of all the forms you need. Some of these may include:

  • 1099s

  • W-2s

  • Bank statements

  • Proof of income

  • Investment statements

  • Bills, receipts, or other proof of expenses

Proving you paid for something won’t even be enough in some cases. For example, if the IRS is examining your business deductions, you’ll have to prove your expenses were legitimate.

For that reason, we recommend keeping a detailed record of those expenses:

  • Substantiating deductions for travel, meals, and entertainment

As a business owner or employee, you are required to maintain an account book, diary, log, trip sheet, or similar records, as well as documentary evidence, such as receipts and canceled checks, to substantiate the amount, time, place, a person met with and the business purpose of your expenditures.

Once you have all the copies and originals of your documents, get them organized, especially if you are facing an in-person audit. A good organization shows the agent that you are a responsible taxpayer.

Be polite, courteous, and quick with responses

Don’t ignore IRS letters or notices. When you don’t reply to the IRS, they assume the worst and actually increase their investigation and make your situation more serious.

IRS agents and representatives are people too. If you treat them rudely, it’s not going to help.

Get Help ASAP

If you don’t already have a tax professional, hire one immediately. If you already have a CPA or Tax Professional (Tax Pro), get in touch with them right away.

Most will assist you in the auditing process. While it can be tempting to handle it yourself, don’t. Sometimes you’ll just end up calling attention to areas the IRS isn’t concerned with and making an even bigger mess for yourself. Audits are serious business, and hiring help is the smart choice.

Call us!

Phone: (800) 913-0809, SMS: (224) 676-3577

Pay what you owe ASAP

You want this situation to be over, and the best way to accomplish that is to pay what you owe immediately. If you don’t, you run the risk of added interest and penalties with late fees on top of that.

If you don’t pay the balance in full in the first 21 days of receiving notice of what you owe (for balances less than $100,000), penalties begin accruing. The faster you can get this squared up and put behind you, the better.

Contacts us to set up an appointment if you have any questions:

United States Tax Services: Tax Preparation, Payroll, Accounting, Tax Planning

Call us at (800) 913-0809 or send an SMS at (224) 676-3577 if you have any questions.

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