Filing taxes can be an intimidating experience, particularly for individuals who have never completed this task before. The inevitable shuffling through large amounts of paperwork, combined with the intricacies of the filing forms, will likely create stress and frustration for those who may not have the knowledge or experience they need to ensure that they have filed their forms correctly.
However, even experienced tax filers dread the possibility of the Internal Revenue Service taking a deeper look into their tax returns as part of a tax examination or tax audit. These two terms are used to define the same IRS-initiated process of examining tax returns in order to highlight any discrepancies or filing errors that could lead to increased tax payments for filers.
Exploring Tax Audit Selection
The IRS relies on a combination of random selection and specific triggers to flag tax returns that they believe require further examination from federal employees. Being selected for a tax audit is not an immediate indicator of guilt.
For example, if you receive notification that you have been selected for an IRS examination, this may have been merely the result of random selection. In the vast majority of situations, the IRS audit process does not result in legal or monetary penalties for tax filers.
Understanding the IRS Tax Examination
When the tax examination begins, an IRS agent will likely compare the amount of income you reported to the government and compare this to the supporting financial documents you provided with your tax return. For example, if you have self-calculated your adjusted gross income and made an error, the IRS agent responsible for your tax examination would likely identify this mistake and, if needed, ask you to pay additional money to compensate for the tax discrepancy.
In the vast majority of situations, these tax examinations take place through mail. If a personal interview is required, this will likely take place after this initial phase is undertaken.
Learning Your Rights
The IRS is granted a three-year window to highlight any mistakes that may have been found on a previously filed tax return. They can request additional tax payments during this time, or perform any type of audit or examination of your taxes as they see fit.
If the discrepancy between your income reporting and your actual income is more than 25 percent, the IRS is granted a six-year window in which to further research your return and request additional funds, if necessary. If the IRS determines that you have willfully filed a fraudulent tax return, or it is discovered that you did not file a tax return when required, there is no statute of limitations limiting the ability of the IRS to fine you or request legal action.
Given the fact that the vast majority of tax filers utilize forms such as the IRS Form 1040, it is definitely worth your time to ensure that you have a full grasp of how to correctly file your return in order to ensure that an IRS audit process does not result in penalties.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.