Internal Revenue Service (IRS) Audits
An Internal Revenue Service (IRS) audit is a review or examination of an individual’s or entity’s financial information and accounts to ensure compliance with tax laws. The primary goal of an IRS audit is to verify the accuracy and completeness of the reported financial information and to determine if the taxpayer has paid the correct amount of taxes. Here are key aspects of IRS audits:
1. Selection for Audit
- Random Selection: Some audits are chosen randomly to ensure a broad and impartial examination of tax returns.
- Red Flags: Certain patterns, inconsistencies, or discrepancies in tax returns may trigger an audit. This could include unusually high deductions, underreported income, or other red flags identified by the IRS.
2. Types of Audits
- Correspondence Audits: These are conducted through mail, with the IRS requesting specific documents or clarification on certain aspects of a tax return.
- Office Audits: Taxpayers may be asked to visit an IRS office to provide additional information or answer questions related to their tax return.
- Field Audits: IRS agents may conduct on-site audits at the taxpayer’s place of business or residence. These are more comprehensive and may involve a broader examination of financial records.
3. Documentation and Information Requests
- Document Submissions: Taxpayers are typically required to provide documentation supporting the income, deductions, credits, and other items reported on their tax return.
- Information Gathering: The IRS may request additional information to clarify specific aspects of the tax return.
4. Resolution of Issues
- No Changes: In some cases, the IRS may determine that the tax return is accurate, and no changes are needed.
- Adjustments: If discrepancies are found, the IRS may propose adjustments to the tax return, which could result in additional taxes owed or a refund.
- Appeals: Taxpayers have the right to appeal IRS decisions if they disagree with the audit findings.
5. Penalties and Interest
- Penalties: If the IRS finds that there were intentional violations or negligence, penalties may be imposed.
- Interest: Interest accrues on any unpaid taxes from the original due date until the tax is paid.
6. Audit Representation
- Tax Professionals: Taxpayers undergoing an audit can choose to represent themselves or enlist the services of tax professionals, such as certified public accountants (CPAs) or tax attorneys.