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How To Get Through a Personal Tax Audit

 

An IRS audit reviews and examines an organization's or individual's accounts and financial information to ensure it's reported correctly according to tax laws and to verify the reported amount of tax is correct.

During the pandemic, the IRS has been making it easier to resolve matters by continuing to rely on remote contact. Face-to-face meetings and field activities will be required only in exceptional cases. Invasive audits will be at a minimum. Field agents may be permitted to conduct essential face-to-face activities on a voluntary basis.

That's good to know. And realize too that selection for an audit doesn't always suggest there's a problem. The IRS uses different methods:

  • Random selection or computer screening — Sometimes returns are selected solely by a statistical formula. It compares your tax return against norms for similar returns.
  • Related examinations — Your return may be selected if involved with those of business partners or investors whose returns were selected for audit.

An experienced auditor reviews your return and either accepts it or forwards it for assignment to an examining group.

Fortunately, a refund is not by itself a trigger for an audit.

If your account is selected for an audit, the IRS will notify you by mail — the audit won't be initiated by phone or email. The IRS manages audits by mail or through an in-person interview to review your records. The interview may be at an IRS office or conducted at your home or place of business or your accountant's office.

The audit letter will request information about certain items on the tax return — income, expenses and itemized deductions. If you can't respond by mail — too many books or records to mail — you can request a face-to-face audit.

The IRS will provide you with a written request for specific documents. The agency accepts some electronic records produced by tax software. The law requires you to keep all records for at least three years from the date the tax return was filed.

Use a delivery service that ensures delivery confirmation. If you need more time to respond to audits conducted by mail, fax or mail your written request. A one-time automatic 30-day extension is ordinarily granted. If you receive a notice of deficiency by certified mail, however, you can't be granted additional time to submit supporting documentation. You must continue to work with the IRS to resolve your tax matter. The agency cannot extend the time you have to petition the U.S. Tax Court beyond the original 90 days.

The IRS can include returns filed within the past three years in an audit, but if there's a substantial error, it may add additional years. The agency doesn't go back more than the past six years.

Seeking a Resolution

If the audit isn't resolved, the IRS may extend the statute of limitations for assessment tax. The statute is generally three years after a return is due or was filed, whichever is later. You get more time to provide more documentation.

You can request an appeal if you don't agree with the audit results or to claim a tax refund or credit. An audit's length varies, depending on the type, complexity and availability of information and of both parties for scheduling meetings, as well as your agreement or disagreement with the findings.

You have rights as a taxpayer and throughout the examination, collection and refund processes, including the right to:

  • Professional and courteous treatment.
  • Privacy and confidentiality.
  • Know why the IRS is asking for information, how it will use it and what will happen if the requested information is not provided.
  • Representation.
  • Appeal disagreements.

If you disagree with the audit findings, you can request a conference with an IRS manager. You can get mediation or file an appeal. But to give yourself the best possible chance of a good outcome, call us as soon as you get a notice, so we can help you through the process.

 

 
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McCullough Rossi & Company, Ltd.
McCullough Rossi & Company, Ltd.
Trusted Accountants. Confident Advisors.
2300 Barrington Road, Suite 260
Hoffman Estates, IL 60169-2034
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info@mrcltd.com
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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