The IRS uses various methods to select tax returns for audit, but there’s no surefire way to avoid one. Filing an accurate return is the best defense. The IRS may flag your return if income or details don’t match third-party reports, or if a court links you to abusive tax strategies. Computer scoring systems also identify returns with a high rate of unreported income, which could trigger an audit.
How Does the IRS Determine Who Gets Audited?
The IRS employs several methods to identify tax returns for review. Here are some of the primary factors that can trigger an audit:
- Information Matching: The IRS compares the income and other details reported on your tax return with the information reported by employers, banks, and other third parties. Discrepancies can flag your return for further review.
- Related Examinations: If your business partner or an investor in your venture is undergoing an audit, the IRS might also select your return for examination.
- Local Compliance: The IRS might focus on specific geographic areas or industries to ensure compliance. If your return falls within one of these targeted areas, it could be selected for audit.
- Computer Scoring: The IRS uses a computer scoring system to identify returns that may have a high rate of unreported income. Returns with high scores are more likely to be audited.
- Court-Generated Reports: If a court links you to a potentially abusive tax strategy designed to hide income or evade taxes, the IRS may receive this information and use it to select your return for audit.
What Happens During an IRS Audit?
If the IRS selects your return for examination, they will notify you by mail. The notification will explain the next steps. The audit can be conducted through the mail or in person. If the audit is handled by mail, you’ll need to submit all requested documentation by the due date. If you prefer an in-person audit because you have too many documents to send, you can request one.
In-person audits can take place at an IRS office, your home, your business, or your attorney’s or accountant’s office. During the audit, the examiner may ask questions about your financial records, business operations, or filing history. It may be wise to hire a tax attorney or accountant if you don’t already have one.
After reviewing your documents, the IRS may:
- Accept your original return, requiring no further action.
- Propose changes, which you can agree to by signing and returning the form by the due date and paying any additional tax due.
- Propose changes that you disagree with, in which case you can send additional documentation or request a phone conversation with the examiner. If you still can’t reach an agreement, you can request a conference with a manager or file an appeal. Once an agreement is reached, sign and return the form by the due date and pay any additional tax due.
People Also Ask
What are my rights during an IRS audit?
If the IRS audits your return, you have rights, including the right to get help and to appeal the outcome. The IRS letter you receive will explain how to begin the appeal process. What happens next may depend on whether you owe more or less than $25,000.
How can I avoid an IRS audit?
While there’s no guaranteed way to avoid an audit, the best approach is to file an accurate tax return. Ensure that all income and deductions are properly reported and that you have documentation to support your claims. Keeping organized records and staying informed about tax laws can also reduce your risk of an audit.
What if I disagree with the audit results?
If you disagree with the outcome of an audit, you can request a conference with an appeals officer. The letter you receive from the IRS will explain how to begin the process. The subsequent steps may depend on whether you owe more or less than $25,000.
Understanding how the IRS selects returns for audit and what to expect during the process can help you navigate the situation with confidence.
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