What happens in a Tax Audit?
The mention of an impending tax audit is a situation that most taxpayers fear greatly and would prefer to not find themselves in. They begin to run helter-skelter trying to gather documents, records, and receipts, and trying to figure out why the IRS would want to audit them in the first place. The fear is often tripled for self-employed business owners because their deductible expenses and records are far more extensive than that of individuals. This means that an impending IRS tax audit would involve a tremendous amount of work.
Since the words “tax” and “audit” have been so vilified, what you may not know is that an IRS tax audit may not always be an extensive examination of your individual or business tax returns. It may even only simply involve correspondence between you and the IRS or state tax authorities.
There is more than one type of tax audit and each type of tax audit usually involves different processes. They are explained below.
Types of IRS Tax Audits
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Correspondence Audits
A lot of the time, all that the IRS requires from you is nothing more than proof of a deduction that is listed on your tax return. If the IRS is not satisfied with the information that you have provided, it may trigger a correspondence tax audit, and if they are still not satisfied, you may have to make copies of your receipts and mail them to the IRS to prove that your claim is legitimate.
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In-person audits
If you receive a letter from the IRS that doesn’t just ask for proof of a deduction listed on your tax return or any other minor verification, then you may be facing an office or a field audit.
An office audit requires you to appear at the IRS office with a list of specific documents and receipts, while a field audit (as the name implies) means that the IRS or state tax agent will visit your place of business. You can also request a field audit to take place at the office of your attorney or accountant.
Usually, in an in-person audit, the tax agent will want you to resent information relevant to the returns that they are investigating, including canceled checks, bank statements, credit card statements, income books, and so on. They will check to ensure that all of the deductions that you have claimed for your business were not personal, and make sure that you have accounted for all your cash transactions in the income statement that you submitted to the IRS in your tax return. They may also want to compare your lifestyle and the size of your business to the amount of reported income on your tax return.
What happens after an IRS audit?
After an IRS tax audit, the agent who assessed your case will send you a written report. This report will contain their findings and will tell you if you are cleared or if he found some inconsistencies with your tax return. If he found any inconsistencies, then the report may include a bill for penalties and additional taxes due to the IRS. It will also be sent along with a waiver that the agent will ask you to sign and send back with your check.
You must be very cautious because signing this waiver implies that you give up your right to appeal his decision. This is why you require the knowledge of a tax professional working on your behalf, as you may not know that you do not have to sign the waiver. If you wish to appeal the agent’s decision, them contact the IRS with your complaints rather than returning the agent’s waiver unsigned.
Are you facing an impending tax audit? You have no need to worry. We are a tax relief firm dedicated to giving you the best results regarding resolving your tax debts. Our team of qualified professionals is available round the clock to provide you with the assistance you need. Contact us now at 888-585-8629 or 617-430-4674 or send us an email at help@newstarttaxconsulting.com.
For more information, email info@newstarttaxconsulting.com
