Tax Audit Frequently Asked Questions
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.