IRS Audit
The IRS commonly audits personal income tax returns and is making a special effort to further increase the number of small business audits that it conducts. The IRS audits millions of returns each year and very few us are immune from facing the experience. The Audit process is adversarial in nature and can result in serious penalties and even criminal charges.
Once an process has begun, the IRS will used direct and indirect methods in an attempt to find unreported income and “over” reported deductions. It will review bank records, receipts, business books, personal expenses and even your lifestyle in an attempt to do so. It only has 3 years to conduct the review of a return that has been filed, unless it can prove that the taxpayer overstated income on the original return by 25% or more. Once the audit notice is sent, the taxpayer should review the notice for accuracy and to determine the length of time between the filing of the return and the audit notice.
A taxpayer does not have to attend an audit except under limited circumstances. A representative can be present and can deal with preliminary issues like response times, audit location, IRS communication, review of return for problem areas, performance of research, and the planning of audit strategy.
If the audit is lost, you can choose to pay the bill, conduct an informal review of the audit findings with the audit supervisor, or file a formal appeal that may eventually end up in federal tax court. When the audit is complete, you will received an instruction letter regarding your appeal rights.
Appealing the result can delay the tax bill, allowing the taxpayer to plan a solution or gather money to pay. At a maximum it can result in a complete victory. There are negatives associated with the appeal of the result however. First, interest continues to accrue and second, the appeals officer has the right to raise issues that the auditor missed which could result in even more tax or worse.
If you are an individual or small business and are facing an audit, I encourage you to visit our tax blog to learn more about audits and related issues and then to call to discuss your options.
