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Have you received the dreaded notice that you’re being audited by the Internal Revenue Service? Or worry that the big audit might strike you when you least expect it? If you get audited by the IRS, what happens? First, don’t panic. There are many reasons for an audit, and in 80% of all cases, this requirement only concerns a minor issue on your tax return. Still, we know it’s a stressful event, and we’re here to give you the information you need to get through the process as easily as possible.
What Is an IRS Audit?
An IRS audit is an examination of an individual’s or business’s financial information to ensure the information you’ve provided on your tax return is accurate according to tax laws.
Types of Audits
There are three basic types of audits. The IRS will initially notify you by mail if they require an audit.
A correspondence audit is the simplest type and usually involves a minor error or typo on a recent tax return. The IRS will send you a letter requesting more information, such as income, expenses, and itemized deductions (learn more about self-employment tax deductions). In most cases, you can handle a correspondence audit by mail.
An office audit is more complex than a correspondence audit. You’re required to visit an IRS office with all required paperwork. The initial letter you receive will include all contact information and instructions.
A field audit is similar to an office audit, but the IRS visits you either at your home, business or accountant’s office. Again, the letter you receive will give you all the details you need. You may request an office audit in place of a field audit, but there’s no guarantee the IRS will approve your request.
IRS Audit Process
The IRS audit process differs depending on the issues of your audit. But in every case, it’s important to know your rights as a taxpayer to ensure the IRS handles the process properly. The following frequently asked questions and answers will help you better understand the general IRS audit procedure.
Can You Postpone an Audit?
The IRS typically will grant a one-time, 30-day extension for a correspondence audit. For office or field audits, you’re required to make an appointment, which is usually within two to three weeks. You can, however, contact the auditor assigned to your case to request an extension.
What Will You Need to Provide the IRS?
The IRS will provide you a written request detailing the specific documents they want to see. These, of course, will differ depending on the audit issues. They prefer hard copies but will accept some electronic records generated by tax software. Contact your auditor to determine what they’ll accept. Here’s a listing of records the IRS may request:
- Bank statements
- Proof of income
- Legal papers
- Loan agreements
- Business travel logs and tickets
- Investment statements
- Bills, receipts, and other expenses
Tip: The law requires you to keep all records you used to prepare your tax returns for at least three years.
How Long Does IRS Audit Process Take?
On average, the audit process takes about a month from the time you receive your initial letter to the close of your case. But the length varies depending on the type of audit, the complexity of the issues, the availability of parties for scheduling meetings, and whether you disagree with the findings.
What IRS Audit Penalties Could You Face?
In most cases, the IRS will adjust your tax return, and you pay the tax due plus interest. Reasons for adjustments can include errors you made, the removal of deductions you claimed but can’t prove or income you didn’t include in your return. But if the IRS determines your issues too severe or felt you weren’t cooperative during the process, they can hit you with a 20% accuracy-related penalty.
What Are Common IRS Audit Triggers?
Although the chances of an audit are quite small, you should be aware of IRS red flags — more common areas or issues on tax returns that could draw more attention. Check out this video by Bloomberg that explains the top six red flags.
Should You Get Tax Audit Help?
Getting audited is one of the most stressful experiences you can go through, and you might find it helpful to have someone on your side. Many people facing office or field audits hire a tax professional to represent them. This tax pro must be a certified public accountant (CPA), attorney or enrolled agent. But keep in mind, their fees could rack up quickly.
Another option is to be proactive when you file your tax returns. There are several reputable services that can serve as your advocate in the event you get audited. These services are much less expensive than going with an attorney or CPA; however, they don’t provide in-person assistance during your scheduled audit meeting. What they do offer is an expert evaluation of your audit letter, guidance about what documents you should provide and help to organize your documents in a clear, concise manner to present to the IRS. See below for our tax audit help recommendations:
TaxAudit From TurboTax
TaxAudit.com is the exclusive provider of TurboTax audit defense. TaxAudit.com gives you a few options for audit assistance. You can sign up for their audit defense plan, which requires you to pay a fee when you submit your tax return and covers you if you get audited. TaxAudit.com also offers an option, called “Professional Letter Evaluation,” that charges a $75 fee for them to evaluate the audit letter you’ve received and to give you some consultation about what you’re facing. Then, you can either request further services to assist you during the process (for an added fee) or handle the audit on your own.
Tax Audit Defense
Tax Audit Defense is another reputable online service, but it differs from TaxAudit in that your only option is to pay for audit protection when you file. Obviously, you won’t know if you’ll be audited when you sign up for tax audit defense, but if you think you may be at risk, it could be a wise investment. Tax Audit Defense has two plans: their Silver Plan covers you for your most recent tax return, and their Gold Plan covers you for your past three years of returns.
A Final Bit of Advice
Although being audited is nerve wracking, it’s crucial to keep a level head during the IRS audit process. You’re not helping yourself if you appear uncooperative, reluctant or get irritated with your assigned auditor. Remember, while there are rules to protect you, an auditor does have some discretion about the IRS penalties he or she imposes on you.
If you’re facing an IRS audit, what’s your biggest worry?
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