Tax Audit Frequently Asked Questions

We answer your top questions about tax auditsFor the fiscal year 2009, about 1.4 million taxpayers were chosen for audit. This represents about 1% of the 140 million tax returns filed in 2008 -- pretty good odds. Of those, about 75% were correspondence, or "paper" audits, and the remaining 25% were field or "in person" audits. Even though the numbers of taxpayers audited are fairly low, anxiety about tax audits remains high.

Here, we tackle some of the most frequently asked tax audit questions:Q: How are Taxpayers Chosen for Audit?

Despite the perception that you might be chosen for audit at any time, most IRS audits are not random. Usually, there is a trigger that signals to the IRS that a second look is warranted. Items that tend to be related to an audit include under-reported income (when forms 1099 or W-2 submitted to the IRS don't match what you're reporting); tax deductions that appear to be too high, considering your income; claiming personal exemptions for dependents already claimed on other tax returns; or inconsistencies from year to year (claiming a home interest mortgage deduction one year and not the next, for example).

Q: Does Itemizing my Deductions Make Me More of an Audit Target?

Yes and no. The IRS doesn't necessarily target taxpayers who itemize, but, by the nature of itemized returns, there is more room for error. You're simply more likely to make a mistake or make a claim that the IRS does not understand or feel is justified. With a standard deduction, there is little to no room for error. This should not, however, discourage you from itemizing if you have good records.

Q: How Will I be Notified That I Have Been Selected for Audit?

If the IRS thinks you made a minor mistake, they will send you a notice. In the notice, sometimes called a paper or correspondence audit, you'll be asked to send additional documentation to back up claims that you may have made; requests could include receipts or canceled checks for charitable donations or mileage logs for business travel.

If you have been chosen for a field or in person audit, the IRS will send you a notice advising that you have been selected for examination. The notice will state which years the audit will cover, and you'll be asked to call an agent to set up a time for the audit. The agent will advise ahead of time what records you'll need to make available.

Q: Should I Hire an Attorney to Represent Me at Audit?

It isn't a requirement that a tax professional or attorney be present during an audit, but it may be advisable. If you're concerned about the potential consequences of an audit, or if you're just nervous about it generally, hiring a tax professional or attorney is a good idea. While it's usually not necessary to hire a tax professional or attorney for a minor, paper audit, it's often desirable to have one present at an in-person audit. I think all taxpayers should connect with a good tax professional or attorney when you aren't necessarily in need of one -- this way, you'll know who to call when you do need one.

Q: How Long Will the Auditor be at My Home or Place of Business?

The length of time an agent will be at your home or business depends on a number of factors, including the complexity of the issues presented and how organized you are with respect to your financial records. Plan to spend at least one full day with the agent. If more time is needed, you'll usually be told in advance.

After examining your records, the agent may ask you to gather additional information. If a follow-up meeting is necessary, you'll be notified. Otherwise, you'll receive a notice explaining the findings of the audit, as well as any adjustments.

Q: What If I Can't Get the Information Within the Date Specified?

If you can't get the requested information by the date specified, ask for more time. Reasonable requests are generally granted, and it's better to offer all the information asked for a bit late than not at all.

Q: What If I Don't Provide the Information Requested?

If you don't furnish the information requested in writing, the IRS may recalculate your return assess additional tax, together with an accuracy penalty. If you fail to respond to a request for an in-person audit, or refuse to cooperate, the IRS could seek a court order to force you to comply (that is, however, a rare occurrence). Most likely, they'll simply assess more tax plus interest and penalty.

Q: What Are My Appeal Rights?

You don't have to accept an audit report that you disagree with. You can appeal the report by sending a letter to the IRS within 30 days after receiving it. If you request an appeal, you'll be assigned an appeals officer who is not part of the IRS division that performed your audit. You'll have a chance to plead your case directly with that officer.

If you fail to convince the appeals officer, you have another chance: You can file a petition in U.S. Tax Court. If the bill for any particular tax year in dispute is less than $50,000, you can file a small claim; the process for filing the petition is outlined on the Court's website. A Tax Court case that is decided in small claims cannot be appealed. You may, however, appeal a decision held in "regular" Tax Court -- those issues in dispute that are more than $50,000 or for which the taxpayer elects not to file as a small claim. While you may wish to be represented by an attorney, you may file an action on your own. Success rates vary based on the type of case, but take heart -- taxpayers do occasionally win.

The 10 Most Overlooked Tax Deductions

Don't overpay taxes by overlooking these tax deductions. See the 10 most common deductions taxpayers miss on their tax returns so you can keep more money in your pocket.

Read More

Brought to you by TurboTax.com

How to Find a Good CPA for Your Taxes

Finding a good CPA for your taxes is simple with these seven tips: 1. Ask about their specialization; 2. Verify their identification number, 3. Look up their license, 4. Consider their experience, 5. Confirm their willingness to sign, 6. Ask for advice, and 7. Determine their fees.

Read More

Brought to you by TurboTax.com

Reporting Self-Employment Business Income and Deductions

Self-employed taxpayers report their business income and expenses on Schedule C. TurboTax can help make the job easier.

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.