A tax audit is generally when the IRS or State decides to examine your tax return to verify that your income and deductions are accurate and can be substantiated with documentary proof. Most of the time, the IRS and state authorities accept tax returns as filed. However, it selects some for tax audit randomly to determine if income, expenses, and/or credits are being reported accurately or if factors on the return are outside of the norm.
Tax Audit Selection
If your return was selected for a tax examination, it doesn’t automatically mean something is wrong. Tax returns are selected for examination using a variety of methods, such as:
- Random selection and computer screening: sometimes returns are selected based solely on a statistical formula.
- Document matching: when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
- Related examinations: returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
Tax Examination Methods
A tax exam may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). The IRS will tell you what records are needed. However, nowadays most audits are conducted by mail.
Tax Audit Process
There are three main steps during a tax audit:
- The IRS or State Tax Authority will send a letter informing you that you have been selected for a tax audit or tax examination, and listing what information you need to send for review. Samaritan Tax Relief as part of an engagement will review the letter and attachments for the necessary information that you needs to be gathered. We will compare the proposed changes to your tax return vs. gathered information and tax documentation.
- Submit all documentation requested by the due date. It’s integral that accurate and complete information be provided according to the instructions on the items being reviewed and that the documentation provided follows established standards for acceptable documentation. Frequently the letter will ask you to send in documentation to support items claimed on your tax return. If you are unable to provide verification of an amount claimed, we will work with you to provide an explanation of the issue and how the amount was determined.
- The tax authority will review the responses and/or documentation submitted and will issue an examination report with either proposed changes or a no change tax audit. In other words, your return may be accepted as filed or there could be proposed changes. These changes may affect the amount of tax you owe or the size of your refund.
Tax Records Needed
You will be provided with a written request for specific documents needed.
The tax law requires you to retain records used to prepare your return. Those records generally should be kept for at least three years from the date the tax return was filed. If you don’t have records, then a favorable outcome will be more challenging, but not insurmountable.
Importance Of Responding To A Tax Audit Letter
If you don’t respond by the due dates on the letters, the IRS or State may disallow what you claimed on your return and issue a Statutory Notice of Deficiency. This is a legal notice that the IRS or State is proposing an additional deficiency (balance due). With the IRS, it gives you 90 days to petition the United States Tax Court for review of your case. If your address is outside the United States, you would have 150 days.
The 90-day (or 150-day) deadline to file a petition in Tax Court for federal tax matters cannot be extended. If you miss the deadline, you will not be able to have a judge review your case without first paying the amount due.
Samaritan Tax Relief Tax Audit Support
When you hire Samaritan Tax Relief to represent you with a tax audit, we will help you understand why the IRS or State contacted you. We will instruct you on what documentation needs to be gathered with specifics and will formally respond to the IRS and/or State on your behalf. We provide you with professional representation so that you’ll never have to speak to the IRS or State.
In other words, we deal with the IRS and/or State so you don’t have to.
Click on the “Get Help” button at the top of the page to take that first step.