Published on 14/10/2020
Tax Audits have become the talk of the season with U.S President Trump’s Tax Returns being taken up for debate. The news is scary enough for the ordinary taxpayer in the country. Your chances of facing a tax audit are pretty slim, however, it is better to keep yourself prepared.
Decoding the ifs and buts around tax audits
As per the latest data made available, 0.4% of tax returns were put under the IRS lens. It can be inferred that one in 250 taxpayers was placed under the IRS scrutiny.
The IRS also conducts random tax audits, and you could be audited as per a random algorithm that could pick you. You could be an honest taxpayer who hasn’t missed a single deadline in decades but still be put under the IRS scrutiny, due to this random selection. If you have not participated in tax evasion, there is no reason to be scared.
Nevertheless, consider how short-staffed the IRS is. Their internal budgeting has been cut, thousands of people in the IRS have been laid off, and a lack of resources has pushed the institution into many people working overtime. Therefore, even if you have evaded small tax returns here and there, there is a possibility that you can avoid an audit owing to the IRS’s lack of resources.
However, you are more liable to get under the IRS scanner if your businesses show continuous losses. Additionally, you could be subjected to a tax audit if there are errors in your tax return calculation, or your expenses are more than your income. You could also be a potential target for the IRS if third party tax forms do not correspond with your tax returns or you show a series of losses.
How does a tax audit by the IRS work?
The IRS is more likely to send you a request for an audit on paper via mail. More than 80% of audits happen via mail, where the IRS sends you a mail requesting a detailed breakup of your tax returns. As the taxpayer, you have the option of replying to the IRS’s request in the mail or asking for an in-person tax audit.
When the IRS does decide to conduct an audit of your tax returns, they can put tax returns filed by you for the last three years under scrutiny. However, if you plan to lowball your income and file lesser taxes, the IRS can dig deeper and check the previous six years’ returns filed by you. Hence, if you fail to file a return, no norms hold the IRS, and everything is open to be scanned.
Generally, when the IRS is looking at the discrepancy in a particular issue/subject, they might ask you for receipts to prove that specific subject’s expense. But if the disparity extends to multiple facets and things seem fishy, the IRS can go no holes barred and even look at your bank accounts and other financial transactions.
But the good news for you is that the audit has to happen in a stipulated period. They, too, have a deadline to meet to conduct and finish the audit and submit the findings in a report. Although it can work out for you, if the auditors feel something is wrong, they can also extend the audit time.
What follows next is a Notice of Deficiency issued by the IRS, where they have to report their findings. As the second party in the case, you can also challenge the IRS report results and take the Revenue Department to Court if you feel that the information is wrongfully trying to implicate you.
Always remember: no matter how complicated your case, if you have the proper paperwork, flawless documentation, and if you can account for all of the discrepancies raised by the IRS, you can emerge victoriously and sail through the entire process with no harm done.
Final outcome
- You disagree with the findings of the IRS report and take the matter to court.
- You accept the discrepancies raised by the IRS, pay the amount due, and other penalties and close the case.
- The IRS finds no differences in your returns; it’s an open and shut case.
Many people commit tax fraud, tax evasion, and just don’t pay taxes at all. In this case, it has the possibility of becoming a criminal case. If the investigator senses illegal and unlawful tax evasion, the case can also be referred to as criminal investigation agencies.
Tax audits can look like a horror to a common taxpayer. But it’s not really a scare if you get the right help that you need. MyTaxFiler can help you with your taxes to make your life easier.
