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Tax Audit Questions

1. What is a tax audit?

Ans: A tax audit is an exam of your individual or business accounts and financial information to ensure information is being reported correctly and according to the tax laws of the federal or state government. Audits are done to make sure the tax reported is accurate.



2. Why did I get picked for an audit?

Ans: Selecting a return for audit doesn’t mean that a mistake has been made. Returns are selected using a variety of methods, including:

  • Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
  • Document matching. When payer records filed with the tax agency, such as Forms W-2 or Form 1099, don’t match the information you reported on your tax return, an audit can be triggered.
  • Related examinations. Tax returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns are being audited or have been audited.




3. How will I be notified if I’m picked for an audit?

Ans:  Should your tax return be selected for an audit, you will be notified in two ways:

  • By mail, or
  • By telephone
  • In the case of a telephone contact, the IRS will still send a letter confirming the audit.

NOTE: E-mail notification is not used by the IRS!



4. If I’m audited, will the IRS come to my house?

Ans:  An audit 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 or state tax office (known as an office audit) or at the taxpayer’s home, place of business, or accountant’s office (known as a field audit).

Insider Tip: The IRS will tell you what records are needed for the audit, but never furnish information or records the IRS does not ask for. At The Ellem Group, we know exactly how to handle information needed for a tax audit. Don’t open yourself up to further examination and possible tax assessment by giving up too much info!



5. How long does an audit take?

Ans:  The length of each audit varies depending on

  • the type of audit
  • the complexity of items being reviewed
  • the availability of information being requested
  • the availability of both parties for scheduling of meetings
  • and your agreement or disagreement with the findings

Audits can result in no changes made to your tax return filing, or your tax return can be changed. These changes may result in additional tax due, or no tax due, or a refund due you. Any proposed changes to your return will be explained to you by the agent handling the case.



6. How much information does the IRS need for an audit?

Ans:  You will be provided with a written request for specific documents and information needed to complete the audit.

The law requires you to retain the records used to prepare your tax return. Those records generally should be kept for at least three years from the date the tax return was filed.

The IRS will accept some electronic records. If records are kept electronically, the IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what can be accepted to ensure a software program is compatible with the IRS, or whether your electronic records will be allowed.



7. Do I have any taxpayer rights during an audit?

Ans:  As a taxpayer, you do have rights, even if your tax return is being audited. The IRS publishes “Your Rights as a Taxpayer”, which explains the process for tax examination, appeal, collection, and refund processes.

“The Taxpayer Bill of Rights” includes :

  • A right to professional and courteous treatment by IRS employees.
  • A right to privacy and confidentiality about tax matters.
  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
  • A right to representation, by oneself or an authorized representative such as The Ellem Group.
  • A right to appeal disagreements, both within the IRS and before the courts.
  • The right to pay no more than the correct amount of tax.




8. What happens when the audit is over?

Ans: An audit can be concluded in three ways:

  • No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
  • Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes.
  • Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.

If you agree with the audit findings, you will be asked to sign the exam report or a similar form depending upon the type of audit that was done. If you owe money, you will be asked to pay it in full immediately or within 90 days. There are payment plans available, but you will have to ask.

 

The Ellem Group can make the audit process easy for you by representing you before the tax agency and handling all payment arrangements. We have staff that has worked IRS Collections in the past and are very familiar with the way the IRS operates when it comes to tax assessments and payments.