An IRS audit, or IRS examination, is a detailed review of your financial situation.
The IRS chooses taxpayers for audits through a â€śrandom selection and computer screeningâ€ť process that is based on a statistical formula. The IRS compares tax returns against â€śnormsâ€ť for similar returns. You may be chosen for an audit if your return doesnâ€™t follow the â€śnormsâ€ť.
Other reasons you may be audited:
ď‚· Conflicting third-party reports regarding income on 1099s or W-2s
ď‚· Home office deductions
ď‚· Rental losses
ď‚· Business use of a vehicle
ď‚· Hobby-related deductions (also known as hobby losses)
ď‚· Foreign currency transactions or bank accounts
Three Types of Tax Audit
- Correspondence (Mail) Audit: Often used for routine errors from incorrect math or missing paperwork.
- Office Examination Audit: Scheduled at a local IRS branch where they will generally try to find out if you reported all of your income and check that your deductions are legitimate.
- Field Audit: A field audit is the most extensive of the three. An IRS agent will pay a visit to your home, business or accountantâ€™s office to examine records and files in order to confirm that your tax return information is correct.
Preparing for a Tax Audit
You will receive an audit from the IRS by mail or telephone, not by email. The notice will include the specific information the IRS will examine and what supplementary documents you may need to present. You will have 30 days to respond to an audit notice. Do not put off your response, as the time you spend ignoring a letter can be time that interest builds on the amount you owe the IRS.
Before an audit, you need to get your paperwork ready, seek to understand what the problem is and determine if you want representation and gather the forms the IRS has requested.
Migration Resource Center Tax Services
The Migration Resource Center staff has a team of tax consultants, tax attorneys,
enrolled agents, and CPAs. We can assist you with reducing tax liabilities, eliminating tax disputes, negotiating IRS payments, and providing ethical tax representation and tax resolutions.
Please contact us at (646) 827-2959 or use our webform to schedule a free tax consultation.
By: Fatima Kandri, U.S. Tax Court Practitioner, October 12, 2020