Formerly, the word “audit” evoked widespread fear and loathing. With the Internal Revenue Service auditing 5.6 percent of all Americans in 1963, practically everyone knew someone who had been audited. Since then, the number of IRS audits has dropped dramatically, with a 23 percent drop in the last two decades.
IRS audits are becoming increasingly uncommon these days. The typical person has a less than 1% probability of getting audited.
When the IRS audits returns, three out of every four are postal audits. A minimally invasive procedure. The form of audit that most people think of is the far more difficult face-to-face interview.
Let’s take a look at what it means to be audited.
So, why would a person or company be audited? The IRS may audit you for a variety of reasons, including those listed below:
The audit notice letter you get should specify the sort of IRS audit you have been chosen for. Depending on the sort of audit, your tax problems might be resolved in a matter of days or months. Obtaining the services of a tax specialist is strongly recommended for more extensive audits. Consider the following audit categories to have a better understanding of what it means to be audited:
Correspondence Audit
A correspondence audit is carried out through the mail. Correspondence audits typically involve tax issues that are simple to fix. In most cases, the IRS is looking for copies of checks, receipts, and other paperwork to back up deductions or credits you’ve claimed, or to explain other things on your tax return.
Office Audit
An office audit is performed in person at your nearest IRS location. You should be prepared to bring copies of the needed papers to the office. During the audit, you may also have a legal representation or your tax preparer present.
Field Audit
A field audit, like an office audit, is carried out in person. A field audit, as opposed to an office audit, is done in your place of business. At the audit, you should be prepared to produce copies of your documents, and your legal representation or tax specialist should also be present. Unless the IRS has secured a court order, you are not required to allow IRS officials to enter your house. Agents may seek to enter your house if you claim the home office deduction; if you refuse, your deduction will very definitely be denied.
We cannot underscore enough how important it is to reply to all IRS demands for information. Appeals must also be submitted within the deadline provided by the IRS. If you miss these crucial deadlines, the IRS may levy taxes on you. Worse, you may lose your right to appeal.
Filing for an extension is a fantastic alternative for people who are unable to present all required papers by the IRS deadline. This is a precautionary step to counterbalance any additional taxes or penalties that may be imposed.
While an audit may necessitate substantial work on your part to obtain the necessary evidence, it should not cause you to fear. The IRS has established an unofficial threshold for tax fraud of at least $70,000 in unlawfully uncollected taxes and at least three years of fraudulent conduct. As a consequence, while the odds are stacked against you in terms of escaping without further tax responsibilities, it is highly improbable that you will face criminal charges or jail time as a result of an audit as an honest taxpayer.
To avoid the stress and bad consequences of face-to-face audits, many taxpayers delegate field audits, and even office audits, to experienced tax experts who can guide them through the process and deal with the IRS on their behalf
