Five Things to Know About an IRS Audit

An IRS audit is an examination of financial information. The goal of an audit is to make sure that this financial information is being accurately and correctly reported according to tax law. Being under this type of scrutiny can be stressful. If you think you might be subject to an IRS audit, here are 5 things to know that could make the process go a little more smoothly:

How will you be notified?

If the IRS is auditing you, they will notify you either by phone or mail. If they notify you by phone you will receive a follow-up written notice by mail. The IRS doesn’t use email, so if you are contacted by email, beware. There are many scams out there that involve the scammer sending an email claiming to be the IRS.

How does the IRS determine who to audit?

The IRS uses several ways to select specific tax returns for auditing. Tax returns are sometimes selected randomly based on a formula. In the case of a random selection there may or may not be any evidence of an error in the return. The IRS also uses document matching to select returns for audit. Document matching can trigger an audit when the numbers on tax documents, such as W-2s or 1099s, don’t match what was reported on the tax return. The IRS may also select your return for audit if you are involved in transactions with other taxpayers whose returns were selected for audit. For example, you may be selected for audit if your business partner was audited.

What does an IRS audit involve?

The IRS audit process can work three ways:

  1. Correspondence Audit – When the IRS does a correspondence audit, all of the communications are done by phone or mail. You may be asked to submit information or supporting documents by by mail.
  2. Office Audit – When conducting an office audit (also known as a desk audit), the IRS will request that you bring some information and supporting documentation to a local IRS office where you will be interviewed in person by an IRS representative.
  3. Field Audit – This can be the most intimidating type of audit for many taxpayers. During a field audit, an IRS representative goes to your home, business, or your attorney’s or accountant’s office and conducts the audit there.

How long will an audit take?

There is no set time period for an IRS audit. The amount of time it takes for the IRS to review records and come to a conclusion will depend on a bunch of factors, including: the type of audit, the complexity of the case, how organized you are, scheduling of meetings, and whether or not you ultimately agree or disagree with their determination.

What are your rights?

As a taxpayer, you have rights. IRS Publication 1 outlines these rights. Generally, your rights include:

  1. The right to representation by an attorney, accountant, or other representative
  2. The right to appeal the IRS’s decision either through an IRS administrative process or through the court system
  3. The right to know how the IRS will use the information that they request, why they are requesting it, and what will happen if you don’t provide it
  4. The right to privacy and confidentiality about tax matters
  5. The right to be treated professionally and courteously by IRS personnel

 

The IRS isn’t the only agency that conducts tax-related audits. You may be audited by Maine Revenue Services (MRS), Maine Department of Labor, or any other state taxing agency. The audit process, which involves a lot of scrutinizing over your records, is stressful, and having a tax lawyer or CPA involved in the process may be wise. If you’ve received notice that you’re being audited and would like to know how we can help, give us a shout. We’re always happy to look at your situation and explain what we can do for you.