You know it could occur anytime and then it happens: you receive notice that you're being audited by the IRS. The first thing to do is take a deep breath and know that you can prepare for the audit. It's something they do.
The IRS annually reviews certain factors when determining who to audit. If you've received notice, it is likely you were put on their radar. You may be wondering how or why this happening, but for the moment, let's focus on how to handle the audit.
For now, realize that as an average taxpayer, you could go your entire lifetime without being audited. As you breathe in a sigh of relief, keep the following questions and solutions in mind if an audit notice lands in your mailbox.
WHAT ARE THE CHANCES OF BEING AUDITED BY THE IRS?
The odds are in your favor, as you have a very low risk of getting audited. Your adjusted gross income amount is the common target. USA Today reported the following percentages of returns audited based on income data.
- $1-$24,999 – 0.93%
- $25,000-$49,999 – 0.54%
- $50,000-$74,999 – 0.56%
- $75,000-$99,999 – 0.52%
Your percentage of being audited increases if you have an adjusted gross income of over $200,000 or declare “no income.” The percentages are as follows:
- No income – 5.26%
- $200,000-$499,999 – 1.75%
The bottom line is fewer than 1 in 100 tax returns are selected for audit. It's important to not raise red flags.
WHAT DOES IT MEAN TO BE AUDITED BY THE IRS?
Beyond your gross adjusted income, your deductions can be a red flag for the IRS. These can include home office deductions, a reduction in business income, or other signs that demonstrate how your cash flow doesn't match your declarations as taxable income.
One of three types of audits will affect you:
- A correspondence audit: This is the simplest. This is most often caused by making an error on your tax return. Something as minor as a typo could raise concerns.
- An office audit: This can be complex and complicated. It requires you to organize and bring your paperwork with you to an IRS office for a face-to-face meeting. High tax deductions like medical expenses can prompt this type of audit.
- A field audit: Similar to an office audit, a field audit is when the IRS makes it more convenient by coming to you. A home or business visit with a request for tax record review is the protocol. The IRS allows you to request a transfer of a field audit to an office audit, though there's no guarantee of acceptance.
You will have a deadline for producing your records if you receive a correspondence audit. A field or office audit will require a calendared event, most often a few weeks from the time of notification.
You also have the option of a postponement if you need more time to gather your records. A written request is sufficient to request a postponement from the IRS.
HOW DOES THE IRS CONTACT YOU ABOUT AN AUDIT?
The IRS will not send an email to you. If you've received an email from the “IRS”, it is most likely fraud. Steer clear of these malicious emails to avoid a tax scam. An IRS audit notification will occur via phone or mailed letter. If you're still in doubt about whether it's legitimate, ask a tax professional. You don't need to go it alone if you're scheduled for an audit.
You have options according to CBS News: “You can choose to attend and handle the audit by yourself, hire a tax professional to go with you or hire a tax pro to go in your place. If you choose to handle the audit yourself or to have a representative go with you, you increase the risk that the agent/auditor will ask questions that you would prefer not to have to answer on the spot.”
Questions are as common as fear when you face an IRS audit. You also have rights and advocacy when you receive notice being audited. Contact our law offices with your questions, concerns, and fears about an IRS audit. Schedule a consultation to discuss your options for assistance with your pending IRS audit.