No matter how meticulous you are with filing your taxes, there is always going to be a chance that you face an audit. An audit is so ubiquitous that even if a person does not understand what it is, they still know that it is a thing no one ever wants to deal with. Unfortunately, there is always going to be a chance that you may face an audit, so the best thing to do is to know what you should do if your tax return is selected for an audit by the Internal Revenue Service (IRS).
Why did my tax return get selected for an audit in the first place?
There are several reasons why a person would be under an audit. The first is that they simply randomly chose your tax return to audit. One of the common reasons is because you made a mathematical error in your filing. Even if you did not intend to give false information in your tax filing, it will not do you well if the IRS catches the errors and audits you as a result. In order to ensure that you do not get audited for this reason, make sure that you double, triple, quadruple-check every detail you put into your tax return.
Another reason why you may be audited is that you failed to report some income, either intentionally or otherwise. It may seem tempting to leave some side income off of your tax return, but unfortunately, if you earned that income through your employer, the IRS is probably already aware that you earned this money. Thus, if you leave it off of your filing, the IRS may well recognize that income that should be listed is not.
You should also be mindful of how many losses, deductions, and charitable donations you put down on your tax form, as listing too many of these may grab the IRS’ attention. And that’s the last thing you want to do. Of course, if you indeed have experienced that many losses, or had that much to deduct, or contributed that much to charity, it only makes sense that you would include these in your return. Just do not be surprised when the IRS comes back to you with some questions. As such, if you find yourself in this position, make sure that you follow the rules by the book.
Sometimes, aspects of your tax return will inevitably make it at greater risk of an audit, and one of those is when your numbers seem a little too neat. For example, if it seems like a lot of your numbers are round numbers, the IRS may become suspicious. As a result, they may seek to get verification that these numbers are accurate, and if they are, they should leave you alone. Of course, unless this leads to them finding a different issue with your return.
What should I do if my tax return is selected for an audit?
The number one thing to do when the IRS has you in its crosshairs is to cooperate with them. The first thing they will expect you to give them as part of this audit is relevant documents and additional verification to solve any issues they had with the return. One of the big things, as discussed above, is unreported income, and if they find evidence that would suggest you did not report all the income you earned that year, they are going to be seeking out an explanation for the discrepancy.
Mind you, just because you were contacted by the IRS does not mean that you are necessarily under audit. At times, the IRS may simply get in contact with you because they needed to get some clarification on problematic details they picked up on. Typically, this kind of content will be resolved with relatively little fanfare. However, you will know when you need to worry when you see a statement in the IRS letter following your tax return information declaring that your return has been selected for an examination. The letter will also make clear what specific issues are being examined, to ensure that you can cooperate with them in the most effective manner.
You may also experience an audit differently than simply interacting through the mail, also known as a correspondence audit. They may also perform an office audit, where they require you to bring the relevant documents and information to your local IRS office, and the audit will be conducted in person. On the other hand, the IRS may just well decide to show up at your place of work in the event that the business is relevant to the audit. Finally, there is the Taxpayer Compliance Measurement Program Audit. If you are the target of this kind of audit, you will be required to substantiate every detail of your tax return, including all items, as well as birth and marriage certificates (if applicable).
It is important that you respond properly to any form of audit, regardless of whether it is in person or by mail. Not just because saying the wrong thing, or saying something in the wrong way, can potentially lead to the audit going south. After all, if you fail to do it properly, even if you do eventually pass the audit, the audit may take longer than is necessary. When you respond to the IRS by mail, make sure that you include all important information. It should include your tax ID number, your full legal name, any important contact information, employee ID, business ID (if applicable), and the name of the IRS employee who is responsible for your case.
If you worry that you may not know the best way to maintain some correspondence with the IRS and get out of an audit without issue, there are options available to you. For example, working with an experienced Albany, NY tax attorney can do a world of good to help ensure that not only do you avoid getting involved in an audit in the first place, but also to ensure that if you are, you get out of it cleanly.