IRS TAX AUDITS AND HOW TO RESPOND TO THE IRS

Tax reporting is something that every taxpayer living in the United States cannot avoid. No one should ignore the routine tax return process every year, because the tax return is important and if not adhered to will lead to penalties, ranging from fines to interests to potential criminal cases. Tax Evasion is a serious crime in the United States, with a maximum penalty of 5 years in jail plus a fine of 250,000 dollars.

Compatriots who have already obtained a green card or are naturalized in the United States should also pay special attention to the fact that even if they do not live in the United States, they must declare their worldwide income every year. However, if you live overseas, you can automatically enjoy a two-month deferred tax return, that is, you need to submit a tax return before July 15th, but if you owe IRS taxes, you still have to pay it before July 15th, otherwise interests and fines will be generated.

Every taxpayer hopes to pay less tax, but they are all afraid of getting into trouble by IRS Audit tax checking. In fact, there is no problem with avoiding tax legally in the United States. The IRS itself also has many regulations to reduce tax for taxpayers, for example:

Tax Deductions: Subtract various expenses allowed by the IRS from the income, reduce the taxable income (taxable income) and thus reduce the income tax payable.

Tax Deferral : Deferring the time required to pay taxes, such as saving money to pension plans such as IRA, SEP-IRA or 401(k) plan, A 401(k) plan in the US is a tax qualified, defined pension account defined in subsection 401(k) of the Internal Revenue Code. Taxpayers can wait to pay their taxes when they retire.

Tax Credits: Tax reliefs provided by the government for specific situations can be deducted directly from the amount of tax payable, and you can get a refund if you have more, such as Child Tax Credit and Child and Dependent Care Credit, Low Income Family Tax Credit Earn Income Credit, American Opportunity Tax Credit and Lifetime Learning Credit for education, etc.

As long as you meet the corresponding conditions, you can safely declare these tax deductions and reductions and legally reduce the income tax you need to pay.

Tax Audits is just an IRS Internal Revenue Service or State Taxation Office that needs to be reviewed and verified to ensure that the contents of your tax return are correct. Being tax-checked does not mean you have a problem with your tax return. As long as the declaration is true, you only need to submit the relevant supporting documents when checking the tax, and you don’t need to worry too much. Sometimes the IRS tax inspection is only a random spot check, but more often, it is because some suspicious circumstances have triggered the review mechanism.

NUMBER OF PEOPLE TAXED EACH YEAR

This number is not fixed. It changes from year to year. According to the IRS official website, in 2017, the IRS reviewed 1.1 million tax returns, accounting for only 0.5% of the total number of tax returns in 2016 (in fact, only a small number of people will be spot-checked) and 70.8% of the tax checks were completed by mail. Another 29.2% needed to be conducted face-to-face.

HOW MANY YEARS THE IRS CHECK FOR TAX FILE RETURNS

Generally speaking, the IRS will only review the tax returns within the last 3 years. However, if you are found to have underreported 25% or more of your income, the IRS will retrospect the tax returns for the last 6 years. Taxpayers are required by law to keep all tax return information for at least 3 years, so after tax returns are filed each year, all tax return related information and documents should be kept and sorted and summarized by year. For safety, in addition to the originals, you can scan and organize all the information into an electronic format and save it on the cloud disk, which can be more at ease.

 HOW THE IRS INFORM PEOPLE TO CHECK THEIR TAXES

The IRS will only send notices of tax review via USPS mail, and will not notify you by telephone, E-mail, SMS, etc., nor will it charge you a fine for arrears. The USPS means United States Postal Service and it is an independent agency of the executive branch of the US federal government responsible for providing postal service in the United States. If you receive phone calls, emails, or text messages such as IRS tax checks, especially requiring you to provide bank account information or request money transfers, don’t pay attention, those are scammers looking to extort you.

HOW TO RESPOND TO IRS TAX INVESTIGATION

The IRS will handle audit tax by email or interview, and the notification email will give you detailed instructions on what you need to do. Most people only need to mail back the certification materials required by the IRS. If the interview is required, the place will usually be located in the IRS office (office audit) or the taxpayer’s home, company or field audit (field audit).

These key notes are important to know when handling tax inspection:

Don’t panic – Just respond to the IRS in a timely manner, and don’t rush to fix it right away. Give yourself more time to sort out all the required documents. Panicking will not solve anything and might even worsen the situation because you might make a mistake along the way.

Submit only the documents required by the IRS – IRS will list the supporting documents you need to submit in detail. Prepare all the required documents, and do not add more documents to the ones you have prepared documents.

Only submit copies of documents – Keep the original documents to yourself, just submit the copies, otherwise it will be more trouble for you if the IRS loses your original documents.

Make a list of the submitted files – This is important so you can have a record of what you submitted in case you need to refer to them later.

Be honest and short in answering questions – Ask what questions to answer. Do not lie. Do not talk too much, because tax inspectors are very experienced and are likely to find other questions from unrelated words. If you can’t answer the question, you can record it first, tell the examiner before replying.

Be calm – The tax inspector is not a monster. He is only doing his job in tax checking, not to trouble you, as long as you provide the proof they need without disputes.

Ask for the help of a tax professional if you cannot handle it on your own – If you are not sure about the tax investigation response and you are worried about saying the wrong thing, you can hire a professional accountant, lawyer, tax preparers and other professionals to help you review the document and answer the question; if you want to sign the document, Be sure to ask a professional to help you see and sign again if you think there is no problem. All signed documents must be kept in a copy.

Tax review results – After IRS tax inspection, there will be the following three results:

 

No change: IRS finally thinks that your tax return is no problem.

Agreed; IRS thinks that your tax return has problems and needs to be changed. You find that you made a mistake and agree to accept it. For example, if the IRS allows you to make up for taxes, just sign the documents and pay the taxes.

Disagreed; The IRS believes that your tax return needs to be changed, but you disagree. In this case, you can request a meeting with the IRS manager or with a Tax Attorney, or file for a mediation or appeal.