“What to expect from a tax audit?” It’s the most common question we’re asked regarding audit notices when people come to our tax law offices in San Diego and Orange County. The letters typically arrive without warning and it catches taxpayers off-guard. In this post we’ll try to dispel some myths and explain what the IRS wants and what you should be asking.
Important Note: In today’s world, thieves are frequently targeting taxpayers. One frequent scam involves crooks calling people, telling them they’re being audited but they can settle over the phone with a credit card and avoid the process. DON’T FALL FOR IT. The IRS will never call you and demand payment. You’ll be notified of any tax issues via mail and you will not be required to issue payment via credit card.
If you’ve received a letter notifying you of an audit, here’s what to expect.
Step One- Why Your Return Was Selected For An Audit
While the IRS is supposed to tell you why your return was selected for audit, ultimately, it’s up to you to ask. If you’re not comfortable asking, qualified tax attorneys such as the staff at RJS LAW or other tax professionals can inquire on your behalf.
Your taxes can be audited for a variety of reasons, including:
- Specific activity on your return, such as cash wages, 1099 and W-2 forms that don’t match your reporting, high deductions relative to your income, reports inconsistent with previous years, etc.
- Related examinations of somebody else’s returns, where your report involves transactions connected to the other person or business being audited
- Automatic flags, where computer programs find outlying “scores” on returns, for example above average withholding.
- Random selection
Note: All IRS Notices or Letters contain a notice number in the upper right-hand corner. These numbers contain further information about the specific issue(s) with your tax return.
Once you know what you are being audited for, you can narrow your focus and start gathering relevant documents.
Contact Your Tax Preparer and/or Qualified Tax Attorney
It’s important to speak to a qualified tax professional. Oftentimes an audit can be nothing more than having to provide a specific supporting document to verify a deduction or reported income. But in other more serious cases audits can be a prelude to criminal charges or it can put an entire company in jeopardy. Experienced tax law and criminal tax law specialists may be needed to help you prepare.
Determine How You Are Being Audited
Once you and your tax professional know why you’re being audited, the next step is to determine how it will be conducted. There are different types of tax audits, each with their own requirements. Knowing how you are being audited will help you determine what documents you need, where to send them, and whether you need the help of a tax professional.
- Correspondence Audit: It’s the most basic of audits and the one most easily handled. The IRS service center asks you for more information concerning a part of your tax return and you mail in copies of your documentation. In this scenario The IRS is generally seeking receipts, checks, mileage logs and similar information.
- Office Audit: the IRS Service Center asks you to bring certain documents in to your local IRS office and the audit is conducted there.
- Field Audit: an IRS agent comes to your place of business to conduct the audit in person.
- Taxpayer Compliance Measurement Program Audit: this is the most extensive type of audit, where every part of your tax return must be substantiated by documents, including birth and marriage certificates. The primary purpose of this audit is to update the data used to write the computer scoring program.
For everything but the correspondence audit it’s highly recommended that you work with a tax lawyer to prepare and present your material. One wrong step and you could open yourself up to a wider examination and possibly criminal charges and fines that could put your business in jeopardy.
Gather Your Documents
Once you know what is expected of you, you and your tax lawyer can start going through your records to find the relevant receipts and documents. Never send in your original documents or your only copy, and never send in more than is requested. If you can’t find relevant documentation, immediately request duplicates, since auditors won’t accept the excuse that records are missing or lost.
Once you have all your copies and originals, get them organized, especially if you are facing an in-person audit— good organization shows the agent that you are a responsible taxpayer, and may result in the agent limiting the scope of their investigation.
What to expect from your Tax Attorney
At RJS LAW the first step will be an initial free consultation in our offices in Los Angeles, Orange County or San Diego. Our experienced legal team has dealt with thousands of taxpayer issues—from the simple to the very complex and we’ll be able to decipher what the IRS is looking for. In more serious cases, we’ll contact the IRS directly on your behalf to get a clear understanding of what the agency wants from you and whether the IRS will accept any types of settlement offers. We’ll work with you to put together all necessary documentation and prepare a defense if there’s any type of disagreement. Our legal team will be with you every step of the way—including all hearings or audits.
Facing an IRS audit is one of the great stressors of life. Every audit is different but understanding what to expect along the way and having an experienced guide can go a long way to easing the audit burden and saving you thousands of dollars in fines and penalties.
This blog post is not intended as legal advice and should be considered general information only. If you have received an audit notice from either the IRS or the California Franchise Tax board, contact the tax professionals at RJS LAW today.
Our team constantly stays updated on the latest tax issues and we can help you sort through your options. We have convenient offices in Orange County and San Diego and we can help. For a free consultation call us at (619)-595-1655.