Common Questions With an IRS Tax Audit

By: Manny Davis Click author's name for more of his/her articles

What Is Tax Audit?

Understanding the basic definition of a tax audit is simple. This is a process in which the Internal Revenue Service reviews your tax return to ensure its accuracy. While this is simple enough, the actual tax audit process is anything but that. From the moment you receive a notice of an audit you will be worried about something showing up that will get you in trouble.

What Rights Do You Have During An Audit?

As a taxpayer, you have many rights during a tax audit. In other words, the IRS cannot do anything they want without your permission. Some of your rights include:

1. The right to be treated professionally and with respect.

2. A right to privacy regarding your tax situation.

3. A right to know why the IRS wants certain information, as well as how they plan on using it during the audit.

4. A right to hire professional representation if necessary.

5. A right to appeal anything that you do not agree with.

How Returns are Selected for Review?

Many people wonder why their return was selected for an audit while tens of millions of other people slip through the cracks. The IRS uses several methods in choosing which returns they review. You should be aware of this process so you can do all you can to avoid being audited.

1. Computer scoring. The IRS has a computer scoring system. This system chooses returns for audits based on the final score that a return receives.

2. Large corporations. Every year the IRS audits corporate returns. If you are involved with a large company there is a good chance that you will go through an audit at some point in time.

3. Matching information. If a W-2 from your employer does not match the income you claim on your return there is a very good chance that you will be audited. You may think you can lie on your return but the IRS can always check it against other sources to determine its accuracy.

How is an Audit Completed?

If you are being audited by the IRS you should want to know how this will be done. Tax audits are completed by both mail and in-person. If you are subject to an in-person audit this will take place at a local IRS office, your home, your business address, or at your tax professional’s office.

When you receive an audit notification letter it will tell you what information is needed. Make sure you have everything you need. It is your right to represent yourself, or hire a professional who can help.

IRS Audit Appeal Rights?

Your examiner will explain your appeal rights before the audit process ever gets started. If you do not feel that the outcome was accurate, you have the right to request an appeal with the examiner’s manager, with the IRS directly, or to one of many courts including the United States Tax Court, the United States Claim Court, or the United States District Court.

What If I Owe More?

There is a chance that your audit will result in you owing more taxes. If you have enough cash to pay this additional sum you should do so as to end the process. Those who are audited and do not have the money to pay their debt need to look into other options such as taking a loan or an installment agreement. Your tax professional will probably try to steer you away from an installment agreement because you will have to pay a lot of money in interest. Instead, you should attempt to find the money elsewhere. There is as very good chance that your credit card’s APR will be lower than anything the IRS will offer.

If you are lucky you will never be audited by the IRS. Those who are need to know why they were selected, what their rights are, and how the process will unwind.

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