Audit Procedure: How To Survive An Audit
Few things strike panic in the heart of a person like an income tax audit. Learn audit procedure and what to do!
Few things strike panic in the heart of a person like an income tax audit. Although most people try to be impeccably honest when it comes to filing their income taxes, all federal income tax returns are run through the Internal Revenue Services computers in search of errors. The computer checks the arithmetic and flags returns that have errors. Even if your taxes have been done by a professional, from time to time, errors can be found. These computers will also flag returns with unusual deductions for someone of a given income level or filing status. At times, higher than average returns are flagged. Claiming a very large deduction for charity or casualty loss will usually create a flag. Deductions for child rearing when you file as single instead of single head of the household will also create a flag. Other flag creating items include large deductions for a home office, exceptionally high alimony payments or claiming a large number of exemptions for dependents not living in your home.
The computers do not decide who will be audited, but instead bring questionable returns to the attention of the examiner. The examiner reviews the return to decide if it will be audited. This does not mean that you should not take a large deduction when you are entitled to it. Anytime you have the proper documentation to prove that your deductions are legitimate you should take it. For instance, photocopied bank records, charity receipts, new car purchase receipt and such can prove extra high interest payments, sales tax payment, and charity donations. You will never find a way to avoid an audit since a certain number of returns are picked at random each year. This is done so the IRS can statistically measure and evaluate the character of taxpayers. You are more likely to be audited if you are in a higher income bracket or live in areas like Chicago, Los Angeles, Manhattan and New York City. Returns can be audited for up to three years after the filing date so keep all your records handy during this period.
The first thing to remember when you are notified that you are being audited is not to panic. This is not an accusation, it is simply an invitation to clear up the problem. Many audits are done by mail, but some will request your presence at a local IRS office. You can call and change the time in this case but it is wise not to appear at a time different than what was stated in your letter. In this case the IRS can rule on the return without you being present. They can also have a court order you to attend. If you are unsure of what you are being asked to provide consult a tax expert or a tax attorney to help you prepare. But most of the time this isn't necessary. If you have all your tax records be sure to bring them. Your audit notice will tell you what items are in question. Bring only those records and review them before the audit so you can discuss them.
During the audit the examiner will discuss the points of the tax laws that are pertinent to your case. Your records will be examined and they will listen to your explanations. Be open and cooperative but only give what information you are asked for. Your audit may be one meeting or several and you may be asked for additional information. When the audit is finished you will receive a report from the IRS giving the outcome. Your examiner will explain what you need to do if you disagree.