IRS Tax Audits
An IRS audit notification understandably brings stress to individuals and business owners alike, particularly when there is unreported income and questionable deductions. If an audit is handled improperly, it can result in a significant tax bill or even criminal prosecution.
An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate (irs.gov).
Audit Selection
Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
- Random selection and computer screening - sometimes returns are selected based solely on a statistical formula.
- Document matching - when payor records, such as Forms W-2 or Form 1099, don't match the information reported.
- Related examinations - returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
Your Rights During an Audit
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts.
Representation in IRS Audits
There are two kinds of audits that individuals and businesses sometimes must confront:
- Office audits, in which a few categories of expenses are selected from your tax return, and you are asked to bring in checks and receipts to prove that deductions were based on actual expenses.
- Field audit, which usually involves a detailed examination of a tax return, where you have to substantiate every item.
While audits can consist solely of providing checks and receipts, it is surprising how often issues of tax law are involved, even in office audits. If you have a complex return, a return showing a very high income, or a return for which very few checks and receipts are available, you may need an experienced tax practitioner to handle the audit. This is especially true when the return has been filed late, or the IRS has filed one for you. It is just mandatory when you believe it is possible for the IRS to accuse you of tax fraud.
How To Prepare For IRS Auditors
One bit of good advice is to perform an audit of your records on your own first. Then you'll want to do it a second time in our office. This is a great way to prepare so you know where the potential problems are, if any. If you are being audited for a specific year, the investigation may expand to other years as the Auditor goes through the records.
Meeting with the IRS Auditors in either their office or our office is the only way to go - you never want them stepping foot inside your house. They send their best people out for those audits and it can be very intimidating.
Mendoza & Company, Inc. deals with the IRS directly on your behalf. Our goals are to solve your problems and provide you with a peace of mind and an opportunity to continue with your life without the headaches of the IRS. We have successfully represented people before the IRS.