Did you know that 1 out of 16 people who prepare their own taxes will likely be audited by the IRS?
For many people, the news that they’re going to be audited by the IRS is the equivalent of a death sentence. Are you one of those unfortunate Taxpayers that will be audted this year?
If you’ve never been audited before, then you might not know what to expect.
What does it mean to be audited?
Keep reading to learn about what it means to be audited.
1. The Meaning of Being Audited
Have you ever asked yourself, “What does audit mean?”
Simply put, an audit from the IRS is meant to determine whether or not your reported earnings and other tax information are accurate. If they aren’t, you can expect an adjustment in your tax return and you might have to pay penalties too.
The audit will consist of a thorough examination of your financial accounts, books, records, documents, vouchers, and more. You may have to disclose non-financial information if it helps with painting a more accurate picture of your situation.
Not all audits are exactly alike, however. In fact, there are several different kinds of audits that you could be subjected to depending on the circumstances, such as correspondence audits, office audits, and others.
2. Correspondence Audits
A correspondence audit is probably the easiest audit to deal with. If you’ve received news that you’ll be subjected to a correspondence audit, then you shouldn’t worry much at all.
In most cases, this kind of audit can be resolved by sending the IRS proof of certain deductions or credits you’ve listed on your tax returns.
This kind of proof will usually take the form of copies of receipts, checks, or other documents that can prove the accuracy of your completed tax forms.
Of course, if you don’t have the supporting documentation, then things might not be so easy to resolve and could lead to tax return adjustments, penalties, and possibly even further auditing.
3. Face-To-Face Audits
The IRS used to perform most audits in person, covering a wide range of materials, but budget cuts over the years have resulted in the agency shifting toward more specific audits conducted through the mail.
However, just because face-to-face audits don’t happen as often as they used to doesn’t mean you could never be on the receiving end of one.
If you find yourself in the middle of a face-to-face audit, there are certain steps you can expect to occur. You will, of course, be notified by mail that you’ll be subject to the audit. You’ll also receive a Form 4564, otherwise called an IDR (information document request).
Afterward, you’ll have to attend an initial interview at an office in the IRS building. Depending on the complexity of your situation, this office audit interview could take 2 hours or an entire day. Based on this interview, the auditor will be able to determine what they’re dealing with.
The next step will involve the IRS focusing on a few key issues regarding your situation. This could also lead to more IDRs and office interviews. Once all of these processes are complete, you might end up having to pay adjustments on your tax return and possibly even penalties.
4. Field Audits
Like an office audit, a field audit is another type of face-to-face audit and it can be even more intrusive because it will take place in your home or business.
When it comes to having a field audit in your home, you don’t have to give the IRS permission to enter your house unless they have a court order that gives them legal access. For example, it might be necessary for an auditor to enter your home if you claim a home office deduction when you file your taxes. It’s a safe bet that your home office tax deduction will be denied if you refuse to let the necessary IRS personnel into your house.
You’ll, of course, getting a warning ahead of time so that you can prepare your documents. Once an auditor actually knocks on your door, you should be ready to show them copies of your documents.
It’s important to remember that your tax professional or legal advisor should be a part of the field audit.
5. Filing for an Appeal
Once an audit is complete, the auditor may find it necessary to adjust one or more of your previous tax returns. In addition, you may have to pay various fees.
Despite this, you still have the option to fight back by filing for an appeal. If you choose to go the route of an appeal, then a representative from the IRS’s Office of Appeal will consider your case at a hearing. The process is usually not fast and you can expect to wait several months after the completion of your audit.
In most cases, the appeals officer will contact you over the phone. However, if you want meeting in person with the appeals officer, then you’ll have to request one.
The appeal may not end in your favor. In that case, you could go further and have your appeal considered at the U.S. Tax Court.
It’s worth noting that an audit is unlikely to end with you doing jail time. Tax fraud usually starts at about the $70,000 mark. If any discrepancies are due to an honest mistake, you shouldn’t expect any criminal charges.
What Does It Mean to Be Audited? Now You Know
The next time someone asks you, “what does it mean to be audited?” you can tell them all about it.
If you have tax problems, Fidelity Tax Relief can help you. An audit doesn’t have to be the end of the world. We can represent you throughout the entire process with guaranteed results.
Our team of knowledgeable experts can also guide you through the hoops of tax negotiations, offers in compromise, stop wage garnishments, and more.
Feel free to contact us if you have any questions about our high-quality services. We’re always happy to help.