For many Americans, the thought of an IRS audit is synonymous with fear and panic. Whether you suspect that information on your tax returns may stick out as unusual to the IRS, or if you have legitimate reasons to be concerned due to understated income or overstated deductions, often times the fear of the unknown can be worse (or nearly as bad) as the audit itself. Therefore, one of the first steps to alleviate this fear is to simply answer the question of whether or not you are actually facing an IRS audit. If you are, here is how you will know.
IRS Audit Letters
If the IRS decides to audit, or “examine” a taxpayer’s return, that taxpayer will receive written notification from the IRS. The IRS sends written notification to the taxpayer’s or business’s last known address of record. Alternatively, IRS correspondence may be sent to the taxpayer’s tax preparer. Letters sent by the IRS will explain the reason for the correspondence and provide instructions to the taxpayer. There are numerous different types of IRS Audit Letters and a qualified tax lawyer can certainly help you clearly identify your problem and explain your options.
Notice of Audit and Examination Scheduled
The Notice of Audit and Examination Scheduled is by far the most common IRS audit letter that a taxpayer can receive. It tells the taxpayer that he or she is being audited by the IRS. This letter will also include information regarding which items on the taxpayer’s tax return require review, and will specify which records the IRS wishes the taxpayer to provide. These letters typically require some immediate action on the part of the taxpayer being audited, including a deadline to submit materials and documentation to the IRS. The Notice of Audit and Examination Scheduled can range in length from one page to several pages, depending on the type of information requested.
General 30 Day Audit Notice
The IRS General 30 Day Letter is sent to the taxpayer after the completion of the audit. This letter contains a description of the proposed changes to the taxpayer’s tax return and generally contains a form called “proposed Adjustment/Changes to your Tax Return,” which is the auditor’s reports or findings. If the taxpayer agrees with the proposed changes, he or she can sign the agreement form. If the taxpayer does not agree with the proposed changes, the taxpayer can file a tax appeal or protest with the IRS office that handled the audit.
Notice of Deficiency: The 90-day Letter
The Notice of Deficiency letter tells the taxpayer that he or she has unpaid taxes for the tax year (or years) identified in the letter. Upon receipt of this letter, the taxpayer can either pay the amount assessed or file a petition with the tax court within 90 days. This letter is urgent and requires immediate attention because the IRS does not grant extensions beyond 90-days.
Request for Consideration of Additional Findings
The Request for Consideration of Additional Findings is a letter accompanying the report that makes detailed adjustments to the taxpayer’s tax return. If the taxpayer agrees to the adjustments proposed by the IRS, he or she can sign the agreement and return it to the IRS. On the other hand, if the taxpayer does not agree with the proposed changes, he or she must file an appeal or protest within 15 days of the date he or she received the letter. It is highly recommended that you seek the help of an experienced tax attorney when engaging the IRS in this way to avoid triggering an unintentional expansion of the audit into additional tax years or types of tax.
Does the IRS Ever Contact a Taxpayer through Email?
No. The IRS never contacts taxpayers through email in order to initiate an audit. Due to certain disclosure requirements, the IRS will contact the taxpayer to notify regarding selection for an audit solely through mail or telephone.
When Does A Tax Attorney Become Necessary?
In an audit, the IRS is essentially a prosecuting attorney and you are the defendant. It can be very difficult for anyone who is not experienced in dealing with IRS audits to ascertain whether or not a question or piece of information could potentially be damaging to your case or trigger an expansion of the IRS audit. Therefore, it is recommended that you seek the counsel of a qualified tax attorney if you are being audited by the IRS. The Tax Lawyer - William D Hartsock offers a free phone consultation with the benefit of attorney client privilege. If your case is very simple and straightforward, no further legal assistance may be needed. However, if your case could potentially lead to larger problems, you may be able to avoid making early mistakes. For your free consultation contact The Tax Attorney - William D Hartsock, Tax Attorney Inc. at (858)481-4844.
FAQs
Remember, you will be contacted initially by mail. The IRS will provide all contact information and instructions in the letter you will receive. If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions.
How do you know if the IRS is going to audit you? ›
The IRS performs audits by mail or in person. The notice you receive will have specific information about why your return is being examined, what documents if any they need from you, and how you should proceed. Once the IRS completes the examination, it may accept your return as filed or propose changes.
How do you know if the IRS is investigating you? ›
Your IRS auditor seems to disappear without explanation. You or your bank gets subpoenaed for financial records. You stop getting the typical notices the IRS sends for things like penalties and interest. You get a surprise visit from IRS criminal investigation agents.
What will trigger an IRS audit? ›
Unreported income
The IRS receives copies of your W-2s and 1099s, and their systems automatically compare this data to the amounts you report on your tax return. A discrepancy, such as a 1099 that isn't reported on your return, could trigger further review.
Can the IRS audit you without you knowing? ›
The interview may be at an IRS office (office audit) or at the taxpayer's place of business, or accountant's office (field audit). IRS employees conducting audits may call taxpayers, but not without having first attempted to notify them by mail.
What raises red flags with the IRS? ›
Another easily avoidable audit red flag is rounding or estimating dollar amounts on your tax return. Say, for instance, you round $403 of tip income to $400, $847 of student loan interest to $850, and $97 of medical expenses to $100. The IRS is going to see all those nice round numbers and think you're making them up.
Who is most likely to get audited? ›
The two groups most likely to get audited are those earning more than $10 million and taxpayers who claim the Earned Income Tax Credit, who tend to be low- or middle-income workers.
How far back can the IRS audit you? ›
How far back can the IRS go to audit my return? 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.
How to avoid an IRS audit? ›
How to avoid a tax audit
- Be careful about reporting all of your expenses.
- Itemize tax deductions.
- Provide appropriate detail.
- File on time.
- Avoid amending returns.
- Check your math.
- Don't use round numbers.
- Don't make excessive deductions.
If your tax return makes sense and everything is well explained, then you will likely never encounter the worry and pain of going through an IRS audit. You will be able to avoid IRS audit red flags and hiring a tax attorney like myself.
The Internal Revenue Service may allow expense reconstruction, enabling taxpayers to verify taxes with other information. But the commission will not prosecute you for losing receipts. The IRS may disallow deductions for items or services without receipts or only allow a minimum, even after invoking the Cohan rule.
What happens if you are audited and found guilty? ›
You may be liable for additional taxes, penalties, and interest that the IRS will start the collection process on. You will also lose your appeal rights within the IRS.
Am I in trouble if I get audited? ›
In most cases, auditors chalk up changes to tax errors. In the case of an error, you have to pay the additional taxes, and as long as you pay them by the due date, you shouldn't have to worry about any civil penalties. However, if the error is significant or if the auditor suspects tax fraud, you will face penalties.
How long does it take before the IRS audits you? ›
The IRS usually starts these audits within a year after you file the return, and wraps them up within three to six months. But expect a delay if you don't provide complete information or if the auditor finds issues and wants to expand the audit into other areas or years.
Do you get audited before or after a refund? ›
Key Takeaways. Your tax returns can be audited even after you've been issued a refund. Only a small percentage of U.S. taxpayers' returns are audited each year. The IRS can audit returns for up to three prior tax years and, in some cases, go back even further.
How do I know if my tax return has been flagged? ›
Taxpayers whose tax returns have been flagged for possible identity theft should receive one of the following letters: Letter 5071C, Potential Identity Theft during Original Processing with Online Option – Provides online and phone options and is issued most widely.
