Demystifying IRS Audits: Understanding the Process and Your Rights

An IRS audit can be a daunting experience, but understanding the process and your rights can help alleviate anxiety and ensure a smooth resolution. This comprehensive guide will provide detailed insights into the IRS audit process, including common triggers, notification methods, documentation requirements, and your options for responding to audit findings.

Triggers for an IRS Audit

While audits are not always indicative of wrongdoing, certain factors can increase your chances of being selected:

  • Random Selection: The IRS uses statistical formulas to compare your return with similar returns, and anomalies can trigger an audit.

  • Related Examinations: If you have business dealings with individuals or entities under audit, your return may be scrutinized as well.

  • Amended Returns: Filing an amended return does not automatically trigger an audit, but it undergoes a screening process and may be selected for review.

Notification and Communication

The IRS will notify you of an audit via mail. Phone calls or emails are not used for initial contact. The letter will provide clear instructions on how to respond and what documentation is required.

Audit Methods

Audits can be conducted through the mail or in person:

  • Mail Audits: The IRS will request specific documents and information by mail. You can mail your response or request an in-person interview if necessary.

  • In-Person Audits: These audits are conducted at an IRS office, your place of business, or your accountant’s office. The auditor will review your records and ask questions.

Required Documentation

The IRS will specify the documents they need to review, which may include:

  • Income records (W-2s, 1099s)
  • Expense records (receipts, invoices)
  • Bank statements
  • Investment records
  • Business records (if applicable)

Responding to Audit Findings

After reviewing your documentation, the IRS will present their findings. You have three options:

  • No Change: If the IRS finds no discrepancies, your audit will conclude with no changes to your tax liability.

  • Agreed: If you agree with the IRS’s findings, you will sign an examination report or similar form. If you owe additional taxes, you can choose from various payment options.

  • Disagreed: If you disagree with the IRS’s findings, you can request a conference with a manager, file an appeal, or seek mediation.

Statute of Limitations

The IRS generally has three years from the date your return was filed or due (whichever is later) to audit your return. However, this period can be extended if a substantial error is identified or if you agree to an extension.

Duration of an Audit

The length of an audit varies depending on its complexity and the cooperation of the taxpayer. It can take anywhere from a few weeks to several months.

Your Rights as a Taxpayer

During an audit, you have certain rights, including:

  • Professional and courteous treatment
  • Privacy and confidentiality
  • Explanation of the audit process
  • Representation by yourself or an authorized representative
  • Appeal of audit findings

Understanding the IRS audit process and your rights is crucial for navigating an audit effectively. By providing accurate documentation, responding promptly, and exercising your rights, you can minimize the stress and ensure a fair resolution. Remember, audits are not always a sign of wrongdoing, and cooperation with the IRS can help expedite the process.

Filing Past Due Taxes. How Many Years WIll IRS Go On Unfiled Returns?

FAQ

Can the IRS audit you 2 years in a row?

Yes, the IRS can audit you for several years in a row. However, if they have audited you on the same issue and you have won the dispute, they will be limited to how many times they can audit you.

How frequently can IRS audit you?

The IRS is not limited to the number of times they can audit you. If they decide that they want to audit you every year for the rest of your life, that’s in their power, absent and proving that a rogue IRS agent has a personal vendetta against you.

Can you be audited multiple times?

There is no limit on how many times the IRS may audit a taxpayer or audit tax returns. However, the IRS cannot audit you for a particular tax year again, unless you or the Secretary of the Treasury request the new audit.

What is the IRS repetitive audit policy?

The Internal Revenue Manual has a “repetitive examinations” procedure (IRM 4.10. 2.8. 5). This procedure states that if a taxpayer has been audited with no changes or just minor changes within the past two years on the same items being audited this year, the auditor is to cancel the audit.

How long can the IRS audit you?

The typical audit statute is for 3 years. In some circumstances such as foreign income or substantial underreporting, the IRS can audit you for 6 years. When the matter involves an unfiled tax return or civil tax fraud, the IRS can audit you, indefinitely. In other words, under the latter two scenarios, the statute of limitations would not expire.

How long does it take to audit a tax return?

Here are the common IRS Statute lengths of time to audit. In most situations, the IRS can go back three years. That means if your 2016 tax return was due April 2017, the IRS has three years from April 2017 to audit you (if you file the return timely, either before or on the April due date).

How many years can a tax return be audited?

“Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed”

What percentage of tax returns are audited by the IRS?

In recent years, the IRS has audited significantly less than 1% of all individual tax returns. Plus, most audits are handled solely by mail, meaning taxpayers selected for an audit typically never actually meet with an IRS agent in person. Also, increased audits won’t happen overnight.

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