Why did I receive an IRS audit?An IRS audit is a formal review of financial information used to verify that taxes were reported accurately. Audits are not inherently sinister; the IRS just wants to double-check your numbers to ensure there were no discrepancies on your return. They are conducted in an effort to minimize the tax gap. That’s the difference between what the IRS is owed and what it actually receives.
Random Selection and Computer ScreeningIn order to determine which taxpayers should be audited, the IRS utilizes both random selection and computer screening. You may be audited simply because your number has come up randomly. The odds of getting an IRS tax audit in 2019 were about 0.4%.
IRS Audit Red FlagsHowever, the IRS also utilizes statistics to establish a “normal” sample of tax returns, and will use these norms to look for any red flags in other tax returns to indicate that they should pursue an audit. Those red flags, known as IRS audit triggers, include:
Math ErrorsIf you haven’t hired a professional to prepare your taxes, make sure you double and triple check your numbers. When filling out your tax return, don’t allow yourself to become distracted, forgetting to jot down that final zero.
Using Neat, Round NumbersIt’s likely that the numbers on your Form 1040 and supporting documents will not be in simple intervals. Avoid making estimations, but if you have to, round to the nearest dollar instead of the nearest hundred. Example: if you’re a photographer claiming a $465.25 lens as a business expense, round to $465 – not $500. The latter is unlikely and the IRS might ask for proof.
Reporting too Many Losses on a Schedule CThose that are self-employed should resist the temptation to file personal expenses as business expenses. Too many reported losses might make the IRS wonder how your business is staying afloat. Reporting too many work expenses is along the same lines as reporting too many losses. Only deduct expenses that were absolutely essential to performing your work duties to avoid IRS skepticism. For the self-employed working from a home office, it might sound appealing to give yourself undeserved deductions for expenses that don’t technically qualify. The IRS knows these deductions are rife with fraud, so be sure to learn its actual definition before claiming it.
Claiming too Many Charitable DonationsSignificant contributions to charity make you eligible for some well-deserved deductions. However, to escape the attention of the IRS, never report false donations. If you don’t have the proper documentation to prove its validity, don’t claim it. If you told the truth on your tax return, you have nothing to worry about. However, if you either knowingly or accidentally lied to the government – considered, at times, a felony charge – you could face some serious consequences, and you should consider getting tax audit help and seek audit representation for your protection.
What to Do if I Get AuditedIf you are selected for an IRS audit, it’s important to do exactly what the IRS requires, and do it promptly. Everything that is required of you will be outlined in your audit letter. In most cases, you’ll simply need to provide a few requested documents that backup your claims about your deductions or income. In some cases, you may also meet face-to-face with an IRS representative to answer questions and review documentation. No matter what your audit is comprised of, it’s important to remember that you are legally entitled to tax audit representation.
What is Tax Audit Representation?Tax audit representation is a service provided by tax professionals in which they act as your representative in all audit dealings with the IRS. Each person who undergoes an audit from the IRS is allowed to have a tax advocate work on their behalf.
What can an IRS tax representative do for me?An audit representative can benefit taxpayers in many ways. An tax representative with the Power of Attorney can advocate to the IRS on your behalf. If they investigate your case and determine you do in fact owe the IRS money, they can help settle tax disputes in the following ways:
- Act as a direct line of communication
- Identify which portion of your return is being audited
- Gather necessary documents
- Handle required paperwork
- Defend and appeal audit, if applicable
- Eliminate or negotiate the amount of proposed debt
- Present an Offer in Compromise (OIC) or Installment Agreement
- Protect your taxpayer rights
- Save you money by ensuring you don’t pay more than you owe
- Assist with IRS Notice CP22E