Anyone that receives an IRS summons is bound to be terrified. Although you have to keep in mind that if you haven’t done anything wrong, then you don’t need to fret. It’s always a good idea to be aware of your rights before you meet an officer.

These rights include confidentiality and privacy, as well as the right to inquire about the way your information would be used. If you’re confused, then you can refer to this article for some clarity in the tax auditing related matters.

IRS Tax Audits

What is an IRS Tax Audit?

IRS is short for Internal Revenue Service. IRS Tax audits are of three types based on varying levels of severity:-

  1. Correspondence or mail audit- if the officers found any issues regarding math errors or missing documents. Then they’ll notify you via mail.

  2. Office examination audit- you’re asked to visit the nearest IRS branch to verify and judge the genuineness of your reported income and deductions.

  3. Field audit- IRS will assign an agent to visit your house or business, to check whether or not your tax returns and paperwork is legitimate.

You can keep some documents handy in case an officer visits you:-

  • Up to three years of previous tax returns.

  • Brokerage statements

  • Receipts

  • Retirement account records

  • Home mortgage statement

  • Pay stubs

  • Canceled checks

  • Legal papers

  • Bills

  • Tickets

  • Medical records

  • Employment documents

  • Loss or theft documents

 

How Does the IRS Choose Who to Audit?

The IRS follows multiple methods and guidelines while selecting a person for auditing. You might be chosen as you fit the general norms for verification. On the other hand, if your business partner or associate is being investigated, then you might fall under their radar as well. Experts recommend that you take an attorney with you to help you through the complicated legal matters.

A few reasons that might lead to IRS tax audit are as discussed below:-

  • Failing to report some income or the source.

  • Reporting too many losses.

  • They are making a math error.

  • They are claiming too many charitable donations.

  • Claiming a home office deduction

  • Deducting a lot of business expenses.

  • Foreign currency transactions.

  • Utilizing round numbers in all the figures.

 

How Long Does the IRS Have to Conduct a Tax Audit?

You will be informed if you’re being audited through an official mail. If you receive any information via call, it’s a high possibility that the data is fake. Based on the type of audit, you would require to either submit documents through mail or in-person interview. You would be given a time limit of 30 days to respond.

In most of the cases, an agent is given approximately three years to investigate your previous taxes and charge you with extra fees, except in the affairs of direct tax fraud. If you need more time, then you can put in a request through fax or via mailing to address mentioned on the envelope.

You might receive a 30-day extension, only if the IRS agent believes that your request is genuine. Some cases in which you most likely get an extension are as mentioned below:-

  • Small business- it takes a lot of time and effort on the agents’ part while auditing small companies. This might play in your favor as you’ll have more time to prepare and present without any extra charges.

  • Adjustments- with more faults in the tax papers, the officer would have to adjust your files accordingly. It could extend your auditing time to years. It might be beneficial for you or maybe not.

  • Appeals- it happens in the cases when there is disagreement regarding the adjustments made by the agent. You have to be mindful of your right to go to the IRS appeal.