The U.S. Internal Revenue Service has the right to audit, or examine tax returns filed by individuals and businesses. Audits are typically conducted on tax returns that are viewed by IRS agents as falling outside the norm in terms of information provided by the taxpayer. For example, if you claim an income of $20,000 and simultaneously claim deductions of $30,000, this financial discrepancy has the potential to trigger an audit because the figures don't add up.
According to the IRS, the agency attempts to audit tax returns as soon as possible after they are filed. Traditionally, most audits take place within two years of filing. For example, if you get an audit notice in 2018, it will most likely be for a tax return submitted in 2016 or 2017. The IRS reserves the right to go back as far as six years and audit a return, particularly if the agency has reason to believe a significant error has taken place.
If your tax return is selected for an audit, you will be notified by the IRS by mail. The IRS does not place phone calls or send e-mails to notify the taxpayer of an audit review. In most instances, you will be asked to verify or explain specific issues in question on your tax return, such as income figures or deductions. Depending on the circumstances, you may be able to respond to the audit via mail, though in some cases, the IRS will request an in-person meeting. The meeting may be held at your home, place of business or in a local IRS office.
The time it takes for the IRS to select your return for an audit, notify you of the information it needs, schedule an appointment or or give you a deadline by which to mail documents, and review the findings after receiving them varies based on the complexity of your tax circumstances and the caseload of IRS agents. As a taxpayer, you also have the right to request extensions on providing requested information, typically as long as 45 days. If you have a tax delinquency, however, interest continues to be assessed during the entire audit examination process. While there is an appeals process for reducing this interest once the audit is resolved, the longer the audit takes, the more likely you are to pay additional fees.
According to the IRS, in 2017 the agency audited nearly 934,000 individual tax turns for the 2016 tax year, which was the lowest number of audits since 2003. The odds of being audited, in 2016 was only 0.6 percent, the lowest odds of being audited since 2002. To reduce your chances of being selected for an IRS audit, keep meticulous business and personal tax records. Complete your tax return in full and on time, and carefully review your return before submitting it to ensure there are no errors. Many audits are triggered by missing schedules or documentation. If you receive a notice of an audit, comply with the request as soon as possible by providing necessary materials to answer the audit’s inquiry. If you are concerned about the process, contact a tax law professional for advice on how to proceed.
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