IRS Audits:
Types, Tips and Warnings
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What is an audit?
An audit is an inspection of an
individual's or entity's books and
records by the IRS. If you're being
audited, the IRS will send you a letter
stating which type of audit applies to
you.
There are 3 types of audits:
-
Correspondence audit
-
Field audit
-
Office audit
Correspondence Audit:
The IRS will request documentation, and
you will be able to mail it to them
instead of delivering it in yourself.
Field Audit:
Field audits
usually involve physical IRS
Inspections, and generally would have to
do with a business.
Office Audit:
You must visit an
IRS agent in their office and provide documentation
based on what was requested.
|
IRS Audit Statistics
|
|
Income for Tax Returns |
Tax Returns Filed
|
Tax Returns Examined
|
Percent Examined
|
|
Less Than $25,000 |
59,211,700 |
1,076,945 |
.81% |
|
25 to $50,000 |
27,263,000 |
259,794 |
.58% |
|
50 to $100,000 |
17,019,200 |
196,582 |
.62% |
|
Above 100,000 |
4,540,800 |
129,320 |
1.66% |
The IRS says that most
people are picked for an audit based on
a computer analysis to determine which
tax returns are most likely to be in
error.
Percentage wise, the IRS audits very few
tax returns. Most tax returns singled
out by the IRS for audit contain:
-
tax deductions that
appear to be too high in
relationship to the person's income
-
tax items that are
erroneous
-
tax items that
require proof or an explanation
-
items on the IRS' tax
issues hot list.
With today's computer
technology there are more ways than ever
that the IRS can monitor tax compliance.
You are
responsible to keep all supporting tax documentation
for 7 years in case of an audit.
According to the IRS
annual data book, individual returns
where taxpayers claimed the Earned
Income Credit were high on the list to
be audited, business owners filing a
Schedule C are also increasingly being
audited.
Audit Tips:
-
Provide everything the
IRS asks for within the requested amount
of time.
-
Bring along
your tax return and all of the
supporting documentation for the tax
year being audited.
-
Never let the auditor keep
any of your original documents,
provide them with copies of everything
requested.
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