A tax audit conducted by the IRS looks at an individual’s income sources or business accounts to ensure that the information reported on the tax return is correct. The IRS audit procedure aims to check that the amount of tax was computed accurately. The IRS implements the tax laws and scrutinizes information to ensure that they comply with those laws and regulations. Many people are not sufficiently prepared for an IRS tax audit and should become more informed so they know how to deal with the situation and present their information in a way that can quickly show the IRS tax auditors that their tax position is in order.
The IRS has certain specific methods of selecting taxpayers for audit. The fact that particular taxpayers are examined closely in a particular tax year does not mean that they are suspected of any wrongdoing. Many people are selected each year on a random basis for audit. The IRS uses statistical means of selecting and examining a sample of taxpayers each year. People may also be selected for audit if the information included on their tax returns does not tie in with the evidence gained by the IRS from third parties. An audit of a particular individual or business may be conducted because another person or business that has transactions with that person is also under examination by the IRS.
Carrying Out The IRS Audit Procedure
A tax audit could take the form of correspondence from the IRS or the individual may be called in for an interview. This could take place at an office of the IRS or at the home or business premises of the taxpayer. If the taxpayer uses an accountant or advisor the interview could take place at the business premises of that advisor. The IRS will communicate what records need to be examined and ask the taxpayer to provide the necessary information. After a full examination of the books, records and supporting documentation the IRS will tell the taxpayer if an adjustment is to be made to the tax liability shown on the tax return.
Rights Of The Taxpayer
Sometimes people who are the subject of the IRS audit procedure may be inclined to feel worried and under pressure, but it is best to take a calm view of the situation and be sure about the rights of the taxpayer and the duties of the IRS. The taxpayer has a right to confidentiality on tax matters, professional treatment by the IRS, and importantly has the right to know why particular information is being requested, what use will be made of it and the consequences of failing to supply the information to the IRS. The taxpayer has the right to be represented by an accountant or advisor and should consider this carefully if notified that an IRS audit procedure is to begin.
At the end of the tax audit the IRS may decide that no change is required to the tax liability already reported by the taxpayer. Alternatively, the IRS may explain that certain income was missed from the tax return and obtain the taxpayer’s agreement to a revised tax liability. If the taxpayer disagrees with the conclusions, decisions made by the IRS can be appealed administratively or through the Courts. For further guidance on the IRS audit procedure taxpayers may consult the information available on tax audits from the IRS website including a video on the subject.