What to Expect During an IRS Audit: A Comprehensive Guide

Understanding the Basics of an IRS Audit

An IRS audit can be a daunting experience, but understanding what it entails can help alleviate some of the stress. An audit is essentially a review or examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is accurate.

Types of IRS Audits

There are several types of IRS audits you might encounter. The most common are:

• Correspondence Audit: Conducted via mail, focusing on specific issues or discrepancies.
• Office Audit: Requires you to visit an IRS office for a face-to-face meeting.
• Field Audit: Conducted at your home or place of business, generally more comprehensive.

How the IRS Selects Tax Returns for Auditing

The IRS uses several methods to select tax returns for auditing. Returns may be chosen based on random selection and computer screening, related examinations, and document matching. In some cases, your return may be flagged if it deviates significantly from the norm due to errors or discrepancies.

What Happens During an IRS Audit?

During an audit, the IRS will review your records and ask questions about your tax return. You will be notified by mail, which includes the contact information for the auditor assigned to your case. It’s crucial to keep detailed records of all income, expenses, and deductions claimed on your return to provide when requested.

Preparation Is Key

To prepare for an audit, gather all relevant documents such as receipts, invoices, and bank statements. It may also be helpful to consult a tax professional who can guide you through the process and ensure you are adequately prepared to answer any questions the auditor may have.

Your Rights During an Audit

It's important to know that you have rights during an IRS audit. These include the right to professional and courteous treatment by IRS employees, the right to privacy and confidentiality about tax matters, the right to know why the IRS is asking for information, how it will be used, and what will happen if the requested information is not provided.

Potential Outcomes of an Audit

An audit can result in several outcomes: no change, where your original return stands; agreed, where you understand and accept any changes; or disagreed, where you do not agree with the auditor’s findings. If you disagree, you have the right to appeal or take your case to tax court.

Post-Audit Consequences

If you owe additional taxes, you'll be expected to pay them promptly. Failure to do so can result in penalties or interest charges. Conversely, if it's determined that you overpaid, you may receive a refund. Keeping accurate records and filing accurate returns can help minimize any negative outcomes from future audits.

Steps to Minimize Future Audits

To reduce the likelihood of future audits, ensure your tax returns are accurate and complete. Double-check all figures, maintain organized records throughout the year, and consider hiring a professional tax preparer if your finances are complex. By doing so, you can minimize errors that may trigger an audit.