12 Most Common Questions About IRS Audits
For the small business owner, taxes are a necessary evil, even when things go well. In the rare instance that they do not go well. you could get an audit notice from the IRS. It helps to know how the IRS does what they do and what they expect from you. Here are the top 12 questions straight from the IRS websitei:
- Why am I being selected for an audit? – There are two primary methods used by the IRS to determine if an audit is indicated:
- Random selection or computer screening – the IRS software systems have huge amounts of data used to compare your return to others in similar businesses.
- Related examinations – if your return indicated interactions with other taxpayers or returns that are being examined, yours could be selected for examination as well.
- How am I notified? – The IRS uses only mail to notify you, not phone calls.
- How will the IRS conduct my audit? – There are two ways most audits are conducted:
- By mail – you will receive a letter with instructions as to what the IRS wants you to reply with by mail. Documents or other validation for deductions is commonly required.
- In person – You will receive a notice to meet with the IRS either at their office or your home, your business, or your accountant’s office. All contact information will be in the mailing you receive from the IRS.
- What do I need to provide? – You will be instructed as to what documentation the IRS wants to see. They will want copies of these, not originals, and the most common documentation required includes (some electronic documents are acceptable):
- Canceled checks
- Legal papers
- Loan agreements
- Logs or diaries
- Medical or dental records
- Theft or loss documents
- Employment documents
- Schedule K-1
- How do I know if the IRS received my response? – However, you send the documentation, use a verifiable delivery method with proof of receipt.
- What if I need more time to respond? – For mail audits, you can fax in an extension request to the number in the audit letter. For in person audits you should call the auditor. You may be granted a onetime 30 day extension.
- How far back can the IRS go to audit my return? – Generally, the IRS can include returns filed within the last three years in an audit. If errors are found, they may extend the time to the past six years.
- How long does an audit take? – There are many variables that influence the time required for an audit, including complexity, documentation availability, meeting scheduling, and whether you agree or disagree with findings.
- What are my rights? – Your rights require more in-depth detail, but in general they 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.
How does the IRS conclude an audit? – There are three conclusions to an audit; no change to return, you agree with findings, you disagree with findings.
- What happens when you agree with the audit findings? – You will be asked to sign the agreement document and pay any monies owed.
- What happens when you disagree with the audit findings? – You can request a conference with an IRS manager, you may be offered mediation, or you can file an appeal.
In the event of an IRS audit notice, your first action should be to contact your CPA or tax advisor.