Everything You Need To Know About IRS Audits

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As one of the most dreaded outcomes of the U.S. tax filing process, an audit carries along with it an unsettling aura of mystery and notoriety. A tax audit typically evokes images of Internal Revenue Service agents with badges showing up at your door and rifling through your personal belongings and assets, looking for clues and other financial information. However, these days, that’s just not the case. In fact, an actual tax audit varies greatly from this stereotypical myth.

At Brennan and Company CPA, PC, we can help you separate fact from fiction. We’re not only the premier bookkeeping service for Philadelphia, but we’re also your resource and the authority for all things tax-related. If you’ve been audited, know someone who has, or are just curious about the process, then we have you covered.

Let’s examine the real process of an audit, what’s involved, and what you need to do if you’ve received notification you’re being audited.

What Causes an Audit?

Typically, the IRS is supposed to tell you why they selected your return to be audited. You can also ask them why. Tax returns can be audited for a wide range of reasons, including:

  • Inconsistent reporting on your tax forms
  • Activity on your return, like cash wages, that doesn’t match your reporting
  • High deductions when compared to your income
  • Red flags, like above-average withholding
  • Random selection

Types of Audits

There are a few different types of IRS audits, and each one has distinct requirements. Knowing exactly how and why you are being audited will help you determine the kinds of documents you’ll need, where to send them, and whether or not you’ll need legal representation.

Correspondence Audit

Here, the IRS will request more information about a specific part of your return. They’re generally seeking checks, receipts, or similar information.  

Office Audit

This audit is conducted at a local IRS office. They’ll ask you to bring your documents and other relevant information.

Field Audit

This is another type of in-person audit, where an IRS agent will come to your home, office, or place of business to conduct the audit.

Taxpayer Compliance Measurement Program Audit

While the primary purpose of this audit is to update the algorithms used for analyzing tax forms, this is one of the most extensive types of audits. It requires just about every part of your return to be substantiated by documents, even including your birth and/or marriage certificates.

What To Do If You’ve Been Audited

If you’re being audited, it’s OK—don’t panic! It’s likely that the IRS has sent you an official notice that requests specific answers or documentation, like information about tax credits, deductions, or your income. Now that you know what they expect from you, you can begin to look through your documents to find the relevant receipts or information they need.

It’s critical to never send in your original or only copy of a document—always make additional copies and send them to the IRS. Additionally, never send them more information than they’re requesting. And if you can’t find the necessary information, request duplicates immediately, since your auditors won’t accept that as an excuse for missing or lost records.

Mind Your Deadlines

During the auditing process, you must respond to the IRS by all specified deadlines and ensure that you’re actively involved in the process, including any disputes or appeals. If you miss any deadlines, the IRS can not only charge you taxes, but you could even lose your right to appeal. And when you supply them with documents, add an explanation of how the item supports your filed return.

If you’re unable to provide the IRS with the information they requested by the deadline, then you can file for an extension. This can protect you from the penalties and taxes that you could be charged with. If you’ve already missed a deadline and the IRS has charged you, you can request a reconsideration of your audit.

While it’s true that only around 1% of Americans get audited every year, the process can seem daunting and even a little scary. But it doesn’t need to be. At Brennan and Company CPA, PC, our team is dedicated to providing you with the information and support you need to confront this process with confidence and assurance.

For more information about tax audits, or our monthly bookkeeping services in Philadelphia, call us today at 215-951-5585!