By Dr. Monica Hubler
Full-Time Faculty, Purdue Global
Ah, April 15, has come and gone and every taxpayer can breathe a sigh of relief—they have filed their taxes for another year and life is good. As a taxpayer, you know the time between January 1 and April 15 applies much stress, ensuring you have all your W2s, interest income, and any other taxable income forms so you do not have any issues when it comes time to file. Once filing has been completed, you feel the stress disburse and can start to relax. In fact, if you are receiving a refund, you might start to plan how to spend the funds.
As plans start to unfold for the refund, one sunny day the mail arrives and you have received an invitation from the IRS: you are being audited. The spring in your step has now turned into lead in your feet and your heart starts to pound and the stress returns. The fear of every taxpayer, an IRS audit, but there are guidelines to review and understand how you were selected and what you need to do and prepare for the invitation.
The audit selection is done randomly and by computer. Additionally, these selections are determined by matching of W2s and any Form 1099s with the income information. These are matched to what the employer has submitted, and are the selections that will prompt the system to select a return for audit. Another item that need to be taken into consideration is the return itself. Some of these are incomplete or sloppy returns, such as unreported income, very low or very high income, changes in income (the IRS does compare returns), charitable contributions, and if the federal and state returns do not match. So before the audit letter is prepared, there are a few steps that the IRS does review. Remember, all this is done by a computer. Because there may be an issue with the return, it does not mean there is going to be an audit; it will move to the next level and reviewed by an IRS employee for these discrepancies.
The next step is the formal notice, or your invitation, which can be done by mail or phone (the IRS does not sent emails). If you receive a letter, just respond with the required and requested documentation and first and foremost, be honest. Provide the information that is requested. Remember you do have rights, one is to have a professional represent you, to be treated with respect by the government (IRS) employee, the right to know why they are asking certain questions and, of course, the right to disagree with the IRS. Just be prepared with all your documents, as the burden of proof are
Once the audit has come to a conclusion, you can agree with the findings or disagree. Of course, if there is additional money owed, it does need to be paid along with any interest and or penalties. If you disagree with the conclusion, the next step to make an appeal which will go to mediation. This is your decision.
Finally, the chance of being audited today is 1 percent and getting smaller. With the IRS having fewer employees, this percentage is expected to decrease. The key is to be honest, you may also consider using a professional or professional tax software for accuracy. The IRS puts fear in the most honest of people, but remember you have rights. Exercise them.
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Monica Hubler is a full-time faculty member at Purdue Global. The views expressed in this article are solely those of the author and do not represent the view of Purdue Global.
The contents of this article are presented for informational purposes only. Always check with a professional regarding any questions you may have regarding financial services.