IRS Tax Audits – What, Who, Why, Scope of a IRS Tax Audit, Former IRS Agents
If you have received an IRS nasty gram you are not alone.
Millions of taxpayers every year receive an IRS tax audit notice letting him know that a tax audit is about to take place. Most people get scared to death of what will happen next but being former IRS agents and managers most people do not need to worry themselves into anxiety and panic attacks. All this will pass.
The best way to defend yourself against an IRS tax audit is by contacting former IRS agents and managers who understand the scope of the length and the complete details of what will take place.
Our firm has a A+ rating by the Better Business Bureau and we have been in private practice since 1982.
We are tax experts in IRS tax audits. We completely understand the what, the who, the why, and the complete scope of your IRS tax audit. Being former IRS agents and managers we have conducted audits and have represented taxpayers that are going through on its. We know every single process there is in the system as well of all the appellate protocols.
Besides having former IRS agents and IRS audit managers we also have on staff former IRS appeals agents and tax attorneys for more difficult and complicated cases.
We are a full service tax firm and all our work is conducted by our in-house tax professionals and IRS specialty tax audit experts.
Odds of a IRS Tax Audit
No adjusted gross income 3.42%
$1- $25,000 1.22
$25,000-$50,000 .73%
$50,000-$75,000 .83%
$75,000-$100,000 .82%
$100,000-$200,000 1%
$200,000-$500,000 2.66%
$500,000-$1,000,000 5.32%
1,000,000-$5,000,000 5.38%
$5,000,000-$10,000,000 20.75%
over $10,000,000
What is an IRS audit?
An IRS audit is a review/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.
You can find more information on Publication 556, Examination of Returns, Appeal Rights and Claims for Refund explains the audit process in more detail.
The IRS Tax Audit Selection Process
Selecting a income or business tax return for a IRS audit does not always suggest that an error has been made. Tax Returns are selected using a variety of methods, including:
- Random selection and computer screening – sometimes returns are selected based solely on a statistical formula. These are very difficult tax audits
- Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported. 1.6 million taxpayers go through these audits every year.
- 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. These are usually high dollar cases.
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:
- By mail, or
- By telephone
In the case of a telephone contact, the IRS will ALWAYS send a letter confirming the audit. E-mail notification is not used by the IRS. If you ever receive an email notice from the Internal Revenue Service you can be sure of one thing is a scam.
Your Rights During an Audit
Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes.
These audit 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 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. Office audits are relatively simple and you are required to go into the local IRS office while field audits can last anywhere from 30 days to two years.
Tax Records that will be needed
You will be provided with a written request for specific documents needed. If you don’t have all the requested documentation you can provide reconstructive records. To do this you should contact us today and we can walk you through the process of tax reconstruction.
The law requires you to retain records used to prepare your return.
Record keeping requirement
Those records generally should be kept for three years from the date the tax return was filed.
The IRS does accept some electronic records. Most revenue agents or field audits generally accept 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. This is obviously the greatest news you will ever have for a tax audit.
2. Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes. The next step will be how to pay the tax deficiency.
3. Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.
Agreed tax audit cases
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 if 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.
Fast Track Settlement (Large Business and International Division Taxpayers)
Fast Track Settlement (FTS) offers Large Business and International Division (LB&I) taxpayers a way to resolve audit issues during the examination process in less than 120-days.
Working with LB&I and Appeals, taxpayers can use the settlement authority and mediation skills of Appeals to shorten their overall experience with the Internal Revenue Service.
FTS reduces the combined LB&I-Appeals process time by two years.
Fast Track Settlement (Small Business and Self-Employed Taxpayers)
Small Business/Self-Employed and Appeals have designed an alternative dispute resolution strategy for small business and self-employed taxpayers, called the SB/SE Appeals Fast Track Settlement.
The FTS program was designed to resolve audit issues during the examination process within a goal of 60 days from acceptance of the application in Appeals.
The process uses the settlement authority and mediation skills of Appeals. We’ve successfully tested the program in Chicago; St. Paul, Minn.; Houston; central New Jersey; Philadelphia; San Diego; Laguna Niguel and Riverside, Calif.
SB/SE and Appeals will continue to offer FTS in these locations and has now expanded the program to include Atlanta, Detroit, New York City, Phoenix, Tampa and Seattle. FTS will be offered nationwide later in 2013.
To apply for the SB/SE FTS program, the taxpayer and the group manager need to submit Form 14017, Application for Fast Track Settlement, and the taxpayer’s brief, concise and soundly written response to the Service’s position.
IRS Tax Audits – What, Who, Why, Scope of a IRS Tax Audit, Former IRS Agents