IRS Tax Audit Help

What is a Tax Audit?

The IRS defines an audit as "a review/examination of an individual's or organization's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct. IRS.gov

In other words, the IRS wants to confirm that what you entered on your tax return is accurate.

How Does the IRS Determine Who to Audit?

In general, the likelihood of you getting audited is relatively low. The statistics and data change based on several factors. The two most common methods the IRS uses for an audit are:

Random computer screening

The IRS has created an algorithm that is the main decision maker when it comes to who is audited. The algorithm compares your tax return against similar disposed returns. Each tax return will be assigned a score by the IRS algorithm; the higher the score, the more likely it will be audited. The algorithm looks for people with high spending and little income. A perfect example of when the IRS will assign a high score is when you have a low income and a mortgage payment that is around the same. The IRS algorithm makes the assumption that you would be able to pay for routine costs of living after the mortgage with your income.

Related Examinations

The IRS may also select your return for an audit if your transactions are related to another return that is being audited. If you are already being audited, the IRS may look at returns from other years to make sure they are correct.

Why am I being audited? This question gets asked a lot. Click on the link to learn in more detail what causes an audit.

Different Types of IRS Audits

The IRS determines audits by the amount of revenue reported on the tax return. These audits will always come via U.S. mail, and that letter will inform you how you need to respond. Tax audits usually occur in one of three ways:

IRS Correspondence Audit (Mail Audit)

This type of audit is by far the most common. This sort of audit is sent via U.S. mail, and the IRS may request that you provide them with certain documents to support what you claimed on your tax return. The types of information they might look for include providing a license for a dependant, stock transactions, sale of real estate documentation, showing proof of mileage and more. If you forget to include information on your return or a company fails to send you the proper 1099, this will generally cause this to happen.

IRS Office Audit:

You will receive a notice in the mail in regards to this audit. However, in this audit, the IRS decides the place and time or will ask you to call them to set-up a time. It will also specify what documents they are requesting. In most cases, the auditor will only look at "major" items on your tax return during these sorts of audits. During the IRS audit, the auditor may ask challenging questions concerning unlisted items in the initial letter. This is very important. You may inform the auditor that you are not ready or prepared to discuss such topics. They will then require a subsequent meeting, but you will have time to prepare your defense.

IRS Field Audit

This is when you get notification that the IRS wants to conduct an audit at your home or company. These are usually the most severe sorts of audits as they pertain to high-income individuals and/or businesses. If you get one of these audits, it is strongly advised that you seek out a professional tax attorney to help you prepare for the audit and answer all questions as precisely and honestly as possible.

How Many Years Can the IRS Go Back to Audit My Return?

In general, the IRS may audit returns submitted within the past three years. However, if they find significant inaccuracies, they may add some more years. If it has been more than six years since you filed your return, you are safe.

The IRS makes every effort to audit tax returns as soon as they are submitted. Because of this, most audits will focus on tax returns from the last two years.

If an audit is not concluded, the IRS may seek to extend the statute of limitations, which is three years from the date your return is filed. This often happens as the IRS takes a long time to evaluate and process the audit. If you extend the statute of limitations, you will have more time to provide supporting documentation, and it will also extend the refund statute so you can get one. If the statute of limitations expires, the IRS can no longer assess additional taxes. If you don't agree with extending the statute of limitations, the auditor will have to make a decision based on the information given.

Tax Audit Defense and Representation

The tax audit process is very well defined and the IRS provides a lot of literature in regards to how to handle it. However, these audits are extremely time-consuming and will take you away from your business and family. The audit will also cause a lot of stress and worry.

At Wolf Tax, we are a full-service tax audit representation firm. We will be there to support you from the beginning to the very end. We will explain what to expect during the IRS audit and what documents you'll need to provide. During the audit, an experienced tax attorney will represent you throughout the entire process. We will handle all communication with the IRS so you don't have to. Don't make the mistake of going it alone. Hire a tax attorney who will fight for you. You can always set up an appointment online by contacting us.