An Internal Revenue Service audit is a systematic review of your financial information to be sure that what has been reported to the IRS is correct and is in keeping with current tax laws. Learning that you or your business is subject to an audit can be stressful and nerve wracking, but it important to keep in mind that is does not necessarily spell disaster or financial ruin.
Learning You Are The Subject Of An Audit
The IRS ALWAYS notifies individuals or businesses that they are subject to an audit in writing by mail or on the phone. The IRS will not email to let you know that they are initiating the audit process. If you receive a notice via email, it is very likely a scam trying to steal private personal information, so you should discard the communication. If you receive formal notice of an audit (in writing or by phone), you should take note of any specific information requested and/or deadlines.
Triggers For An IRS Audit
There are many reasons why you may be the subject of an IRS audit, not all of which automatically mean disaster for your family or your business. Generally, the IRS initiates an audit for the one of the following reasons:
- Random selection: The IRS reports that they randomly select taxpayers each year to audit using a computer screening technique.
- Red flags: If there are inconsistencies in your returns that the IRS notices, you may be notified of an audit. For example, if your income on your W-2 does not match the income you include on your return, the IRS may want to verify this information.
- Guilt by association: If a business you have a relationship with is in trouble with the IRS, your business may be audited as well to confirm that the information you have supplied is true.
What To Do To Prepare For An Audit
If you are indeed the subject of an audit, the first step is to gather all pertinent information. This includes the tax return for the year(s) in question, receipts or backup documentation that may give additional information about your case. You should take note of any deadlines in the communication and decide if you want to partner with a tax attorney or tax firm for support during this process.
In the end, the IRS will let you know their findings. You will either learn that:
- The process is complete and nothing else is needed,
- After some corrections to the discrepancies found, the process is complete if you comply with the changes, or
- You and the IRS do not agree with the discrepancies found. You will want to seek additional support in this instance.
Tax Audits can be stressful and complex. If you would like guidance and support during this process, consider partnering with a tax firm with experience working directly with the IRS. E&Y Tax Preparation Services has years of experience providing audit support to individuals and businesses. Give us a call today at (248) 362-1313 to setup a free consultation.