Audit Overview: What is an audit?

Most people agree that finding the dreaded letter in the mail issued by the IRS is nothing short of a financial nightmare. The confusing nature of tax law and the demands of the IRS make the process extremely overwhelming. A lot of people, however, may not know what an audit actually entails.

An audit is a review of an individual’s or a firm’s tax return and finances conducted by the Internal Revenue Service  to ensure that the amount of tax reported is correct. The majority of taxpaying individuals and businesses are audited because the information they provided either has noticeable numerical discrepancies or falls outside of what the IRS considers statistically normal. This is determined by both computer analysis and direct examination by IRS agents.

If, for example, you state that you make $65,000 a year yet claim deductions on your tax return of $80,000, this inconsistency is an obvious red flag to the IRS and will most likely trigger an audit.

After an audit has been triggered, the process begins with a notification by mail or phone. There are three different ways the IRS can execute an audit. Correspondence is usually through mail but may eventually result in face-to-face meetings with an agent — whether it is in an IRS cubicle, your place of business, or even your own home.

Not all audits are extensive examinations with tremendous consequences, some can be minor. Sometimes an agent finds a hole in your tax return that can be resolved by one missing document. Documents typically requested by the IRS include bank statements, payroll tax filings, canceled checks, deposit slips, and receipts. Other times, audits can be intense and drawn out, lasting up to 2 years. Depending on the severity of the error found in the tax return and whether or not the error was intentional, audits can result in bills, fines, and/or criminal charges.

It is important to note that when the IRS spots an error in your tax return such as a suddenly higher income, the burden is on the taxpayer to substantiate any claims.

The audit ends when the agent has collected all necessary documents and finished reviewing your records. They will then decide to accept your tax return as filed resulting in no changes or not to accept the return as filed resulting in additional tax with interest billed to you. If you do not agree with the auditor’s conclusion, you can appeal for further review.

Most Americans do not have extensive knowledge of tax law, making an audit seemingly impossible to get through. To make matters worse, IRS agents take advantage of this and obtain information they are not entitled to that will end up hurting you.

You don’t have to go at it alone. Proper representation during an audit can relieve the aggravation and level the playing field between the taxpayer and the IRS. The Law Offices of Jef Henninger, Esq. employs extensive legal and accounting experience to provide professional assistance in lessening the workload, financial consequences, and overall frustration of an IRS audit. Don’t hesitate to acquire representation, all it can do is help.

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