What To Do When the IRS Audits Your Tax Return
IRS audits can be stress-inducing even if you know you correctly filed your tax return and did nothing wrong. For those unfamiliar with the tax laws, knowing exactly what documentation to – and not to - submit for IRS review may be a challenge. Here are a few things to consider if your tax return is being audited:
Reviewing the Audit Notice/Letter. Immediately upon receipt, carefully review the IRS audit notice to ascertain the type of audit, the response deadline, the required method to respond, the line items on your tax return that are in question, whether an issue of tax law interpretation exists, and the supporting documentation you need to have to support those line items. If you cannot respond by the deadline, you should contact the IRS before the deadline to request an extension.
How Far Back Can The IRS Audit? The IRS has three years from the later date of either: (i) the date on which the return was due, or (ii) the date on which the return was filed to examine your tax return. So, it is important to keep all records used in the preparation of your tax return until after this three-year period has expired. (Also, filing your return late will not help you to avoid an audit.)
Types of Audits. There are two main types of audits: (i) a correspondence audit and (ii) a field audit. Most IRS audits are correspondence audits, meaning that it is conducted completely through the mail: the IRS mails you a letter demanding documentation to prove you were entitled to claim certain items on your return and, in response, you submit your documents by mail. A field audit is more intrusive and involves an IRS Revenue Agent paying a visit to your home or place of business to review your records.
Substantiating Items on Your Tax Return. Exactly what is needed to substantiate the item(s) claimed on your tax return will vary depending on the nature of the item. However, in all cases, it should be documentary proof of some sort.
If you are unsure what documents to submit or are uneasy speaking with the IRS, contact us. The Law Office of Cheri P. Wendt-Taczak, LLC would be happy to help!
Audit Determination. After the IRS reviews the substantiation provided, if any, the IRS issues correspondence to notify you about the audit results, including any proposed assessment adjustments and explanations thereof, as well as information about your right to administratively appeal the determination.
Appealing Audit Results Through an Audit Reconsideration. If you miss the deadline to file an administrative appeal, in certain situations, you may be able to contest the audit results through a process called an audit reconsideration. Through the audit reconsideration, taxpayers may provide the IRS with new or additional substantiation and request that the IRS reconsider, and ideally reduce, the proposed assessment. While the IRS is not statutorily required to reconsider its audit results, if the taxpayer meets the relevant requirements, the IRS oftentimes will do so. Because the IRS is not mandated to reconsider its audit results, it is important that taxpayer ensure their audit reconsideration package is thorough and well-organized and establishes the relevant criteria for the audit reconsideration eligibility as well as the audit report items at issue.
How to Get Help Responding to an Audit. In many – but not all – cases, the accountant who prepared your tax return, if any, may assist you in responding to the audit. That said, you may want to think twice about having a professional who prepared the return assist with the audit if you think she or he made an error that created the audit problem.
If you are being audited and not sure what to do, contact us. The Law Office of Cheri P. Wendt-Taczak, LLC would be happy to help!