Don’t fear an IRS Audit.  Educate yourself.

If you are subject to an audit for a 2018 tax return, the notices will be starting to roll out via mail shortly. If you do receive a notice. – Don’t Panic. Educate and Prepare yourself. Below are common questions we have heard from our clients. Your tax preparer should be notified of the audit notice. Often the tax preparer will assist or represent you in the audit of your tax returns.

Note: You will not receive a phone call or an email from the IRS. To learn examples of IRS Scams Click here. All initial correspondence should be through the US Postal service.

1. Are taxpayers chosen randomly for an IRS audit?

Some tax returns chosen for audit are random.  Some tax returns are chosen when the information on the return is outside of statistical norms. Some returns are audited because the taxpayer income may be related to other taxpayers, investors and/or business transactions that are under audit.

The 2018 IRS Data Book states “The IRS audited almost 1.0 million tax returns, approximately 0.5 percent of all returns filed in Calendar (CY) 2017. The IRS audited 0.6 percent of all individual income tax returns filed in Calendar (CY) 2017, and .9 percent of corporation income tax returns (excluding S corporation returns)”.

2. Will I need to meet with the IRS face-to-face?

Not necessarily. Most audits are done via mail. In the IRS audit letter, they will specify requested information concerning the deductions, expenses, and income that were submitted as part of your tax return. If the information requested is voluminous, you or your representative can request a meeting, in person, with an auditor who is likely from a local IRS office nearest you.

In 2018, The IRS Data Book states that “The IRS conducted the majority of Fiscal Year (FY) 2018 audits, 74.8 percent, via correspondence. The remaining 25.2 percent were conducted in the field”.

3. Is there a way I can accelerate the audit process?

The Internal Revenue Manual (IRM) states that an auditor has 36 months including the event of an appeal to confirm the findings. The audit length may differ depending on cooperation and/or additional finding throughout the examination. The best way to conclude the audit is to respond in a timely manner and be prepared to furnish any requested information in an orderly fashion.

4. Will I end up owing more taxes?

The best way to avoid paying more taxes is to have all supporting documents for the preparation of the return. The requested information may include receipts, invoices, checks, legal documents, finance agreements, medical records, insurance documents, lottery tickets, and employment agreements.

As stated in the 2018 IRS Data Book “Of the almost 1.0 million examinations of tax returns, almost 30,000 resulted in additional refunds to the taxpayer totaling more than $6.0 billion”.

5. What do I do if I can’t pay what is owed to the IRS?

In the case where the audit results in a balance due and if you are unable to pay immediately, you may be given additional time to pay in full. Installment agreements are available for a specified period of time. Interest on the balance due will continue to accrue until the balance is paid in full. You may opt to have it deducted from your paycheck or, bank account automatically. You may also pay manually online via credit or debit card, mail a check or money order, or pay with cash at participating retailer. There is also the EFTPS Electronic Federal Tax Payment System. With EFTPS you enroll online and create an account and can pay via phone or online directly to the IRS.

6. Can I appeal the audit findings?

If you believe the findings are inaccurate, unfair or unsatisfactory you may appeal to the IRS examiner’s manager. The manager will meet and evaluate the case and consider any other information you provide and will issue a conclusion. If the manager and the examiners reach the same conclusion, you can appeal to the United States Tax Court. Should you choose to challenge an IRS auditor’s findings the experience of a CPA or tax attorney is highly recommended.

According to the 2018 IRS Data Book “Of the almost 1.0 million examinations of tax returns, more than 22,000 taxpayers did not agree with the IRS examiner’s determination, totaling to an unagreed recommended additional tax of almost $10.2 billion”

7. Should I file a return for the next deadline or file an extension?

Most tax accountants and attorneys generally advise to file an extension and pay any taxes due by the original due date. In the event that the extension goes beyond October 15, pay any other taxes you think you may need to pay to avoid additional penalty and interest. Should you file a return during your audit, that year’s return may be subject to the currently open examination.

According to the 2018 Data Book “The IRS assessed more than $13.0 billion in additional taxes for returns not filed timely and collected more than $1.4 billion with delinquent returns”.

8. How far back can the IRS audit my returns?

The IRS.gov website states, “Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.”

However, there have been instances where the IRS has no limits in the cases where the taxpayer files a fraudulent return or does not file a return at all. These no limit scenarios generally accompany fines and imprisonment in additions to penalties and interest. Sometimes the IRS may ask you to voluntarily permit an extension of their auditing period which is generally permanent. It is always wise to retain a qualified and reputable CPA or tax attorney to represent you before engaging with the IRS. An experienced professional knows the process and will help to efficiently complete the IRS audit.

If you are interested in more statistics in the 018 IRS Data Book click here.

Have you received an IRS notice? Please contact us today to make your appointment to review. We have experience in helping our clients with their audits and we would like to help you too.

By Wilke & Associates, CPAs