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General IRS audit information

The Internal Revenue Service delivered a strong year for taxpayers during FY 2012, maintaining key service and enforcement priorities despite a number of challenges.
In the enforcement area, IRS audits of individuals topped 1 million for the sixth year in a row, with a 1.03% coverage rate out of all tax returns filed.
Audits in the upper income ranges remained substantially higher than other categories.
The IRS increased examinations across all categories of business returns by more than 12% in FY 2012, with the largest increases coming in audits of flow-through entities, which include partnerships and Subchapter S corporations. Rates exceeded 20% for the largest corporations.
 

What is an IRS audit

An IRS audit is a review/examination of an business, 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 Selection Methods

Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
1. Random selection and computer screening. Sometimes returns are selected based solely on a statistical formula.
2. Document matching. When payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
3. Related examinations. When 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.
Audit Notification
 

IRS Tax Audit Notification, either by

1. By mail, or
2. By telephone
In the case of a telephone contact, the IRS will still send a letter confirming the audit. E-mail notification is not used by the IRS.
 

Your Rights During an Audit

You can find your legal rights in Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes.
These rights include:
a. A right to professional and courteous treatment by IRS employees.
b. A right to privacy and confidentiality about tax matters.
c. 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.
d. A right to representation, by oneself or an authorized representative.
e. A right to appeal disagreements, both within the IRS and before the courts.
 

IRS Tax Audit Length

The length of each audit varies depending on the type of audit, the complexity of items being reviewed, the availability of information being requested, the availability of both parties for scheduling of meetings and your agreement or disagreement with the findings.
 

Records Needed for IRS Tax Audit

You will be provided with a written request for specific documents needed.
The law requires you to retain records used to prepare your return. Those records generally should be kept for three years from the date the tax return was filed.
The IRS does accept some electronic records. If records are kept electronically, the IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what can be accepted to ensure a software program is compatible with the IRS’s.

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 AGREE With The Audit Findings?

If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.
If money is owed, there are several payment options available. Publication 594, The IRS Collection process, explains the collection process in detail.
 

What Happens When You DISAGREE with the 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.
 

Regarding IRS Tax Enforcement and Other Information

 
The IRS collected more than $50 billion in enforcement revenue in FY 2012, the third year in a row topping that figure. The 2012 numbers were lower than 2010 and 2011, which were unusual years with enforcement dollars helped by large numbers of offshore tax cases coming in.
More than 38,000 disclosures of offshore accounts have been made to date through the IRS’ offshore voluntary disclosure programs. In addition, the economic slowdown contributed to lower enforcement figures, as most enforcement dollars collected resulted from audits of returns for years during the slowdown.
Another factor behind the FY 2012 numbers reflected changes in agency staffing and budget resources. After a nearly flat budget in FY 2011, the IRS’ FY 2012 budget was reduced by $305 million.
This reduction affected the level of staffing available to deliver service and enforcement programs. Overall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6% in the past year.
Also in FY 2012, the IRS continued to confront the challenge of refund fraud caused by identity theft. The IRS more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area.
As a result of these increased efforts, the IRS in FY 2012 was able to prevent the issuance of more than 3 million fraudulent refunds worth more than $20 billion, an increase from approximately 1.8 million refunds worth about $14 billion the previous year.
On the service side, the IRS saw continued strong growth in electronic filing by individuals, as the e-filing rate in FY 2012 exceeded 80% for the first time. Taxpayer interest in online interactions continued to increase as well, with web page visits on IRS.gov up nearly 17% to 372 million.
 
Miami, Florida Keys – IRS Audit & Tax Representation – Former IRS, Agents, Managers