Have you received a letter from the IRS? Are you anxious about potentially hearing from them? When the IRS reaches out, it’s not always a cause for alarm. Their communication can serve various purposes, from verifying your identity to confirming information. However, an IRS Audit explicitly reviews the information presented on your tax return to ensure its accuracy and compliance with the U.S. Tax Laws. Here are some key points to help you understand if you’re genuinely being audited:
Audit Selection Process
- Random selection: You may be chosen for an audit through a random computerized process
- Discrepancy review: The IRS may audit your return for inconsistencies or unusual items.
- Related examinations: Your audit may be triggered if your business partners or investors are being audited.
Audit Triggers
Certain factors can increase your chances of being audited:
- Unreported income
- Disproportionate deductions to income
- Excessive business expenses
- Large amounts of cash transactions
- Claiming business losses year after year
Types of Audits
Audits are conducted in different ways:
- Correspondence Audits: Conducts via mail, these are the most common and most straightforward type of audit.
- Office Audits: You’re asked to come to an IRS location. These have increasingly become phone audits that can last several hours.
- Field Audits: An IRS agent visits your home or business to review the documents. These are the most comprehensive and potentially intrusive.
Timeframe and Your Rights
- The IRS generally has up to 3 years from your filing date to initiate an audit, though this can be extended if significant underpayment or fraud is suspected.
- You can represent and appeal if you disagree with the audit findings.
Protecting yourself
To safeguard against potential issues:
- Keep detailed records (receipts, bank statements, written notes)
- Respond promptly to IRS communications
- Consider professional assistance if you’re unsure about handling the audit process.
Remember, not all IRS communications indicate an audit. Often, they may verify information or address a potential error on your return. However, understanding the process and your rights can help alleviate some of the associated stress if you are facing an audit. Please talk with us today to ensure you’re prepared for any potential IRS inquiries and to keep your tax affairs in order.
The Right Choice—Financial and Tax Services has served Houston since 1993. Our commitment to clients is to provide education and the highest quality of service with integrity, value, and dependability. We’ve been helping Houston residents with their tax preparation needs for over thirty years. Thank you for reading, and I hope this information enables you to make an informed decision about your tax preparation needs.
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