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Do not be in fear if you have just received a IRS Tax Audit Notice.

We are  comprised of tax attorneys, certified public accountants and former IRS agents. We’ve been practicing in South Florida since 1982 in our A+ rated by the Better Business Bureau.

Our firm has over 206 years of professional tax experience right here in South Florida.

So,what is  an IRS audit.

An IRS audit is a review or tax examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.

IRS Tax Publication 556, Examination of Returns, Appeal Rights and Claims for Refund explains the audit process in more detail. You can find that on line.

The IRS Tax Audit Selection Process

Selecting a tax return for IRS audit does not always suggest that an error has been made on the tax return.

Tax Returns are selected using a variety of methods, including:

1. Potential participants in abusive tax avoidance transactions.

Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS.

2. Random selection and computer screening – sometimes returns are selected based solely on a statistical formula. Each tax return receives a DIF score.

What’s the DIF and how does it apply to you?

The IRS says there are several ways a return can be selected for audit and the first is via the agency’s computer-scoring system known as Discriminant Information Function, or DIF.

The  good old IRS evaluates tax returns based on IRS formulas, and DIF is based on deductions, credits and exemptions with norms for taxpayers in each of the income brackets.

The actual computer scoring formula to determine which tax returns are most likely to be in error is a closely guarded secret and only known by a select few.These are the types that would have to kill you than give up the info.

Experts believe one discriminant information function component looks at average deduction amounts.

This allows IRS examiners to spot inconsistencies, such as a high mortgage interest deduction and low income.

So what is likely to trigger a discriminant information function red flag?

1. Higher incomes.
2. Income other than basic wages; for example, contract payments.
3. Unreported income, such as investment returns.
4. Home-based businesses, especially when in addition to salary income, and home-office deductions.
5. Non-cash charitable deductions.
6. Large business meal and entertainment deductions.
7. Excessive business auto usage.
8. Losses from an activity that could be viewed as a hobby rather than a business.
9. Large casualty losses.

3.  Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.This accounts for over $10 B a year for Uncle Sam.

4. Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

IRS Tax Audit Methods

An audit may be conducted by mail or through an in-person interview and review of the taxpayer’s records.

The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit).

The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained.

IRS Tax Audit Notification

Should your account be selected for audit, you will be notified in two ways and only two ways:

1. mail, or
2. telephone

In the case of a telephone contact, the IRS will still send a letter confirming the audit.

Important Note – E-mail notification is not used by the IRS.

Your Tax Rights During an Audit, your Bill of Rights

Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes.

These tax rights include:

• A right to professional and courteous treatment by IRS employees.

• A right to privacy and confidentiality about tax matters.

• A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.

• A right to representation, by oneself or an authorized representative.

• A right to appeal disagreements, both within the IRS and before the courts.

IRS Tax Audit Determinations

An audit can be concluded in three ways:

1. No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
2. Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes.
3. Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.

What Happens When You DISAGREE with the IRS Tax Audit Findings?

A conference with a manager may be requested for further review of the issue or issues. In addition, Fast Track Mediation or an Appeal request may be filed.

IRS Audit Defense, IRS Audit Representation, Former IRS – Oakland Park, Wilton Manors, Tamarac, Lauderhill – Broward County, Florida