When you file a tax return with the IRS, you do so with the idea of providing accurate and complete information. However, no matter how much time you put into your tax return, the IRS still has the ability to choose it for an audit.
There is no surefire way to prevent a tax audit, as the IRS uses several methods to choose returns. These include:
- Computer scoring: The IRS has a complex computer scoring system to analyze tax returns for errors and calculate a Discriminant Function System (DIF) score and Unreported Income DIF (UIDIF) score. The higher the score, the greater chance there is that the return will be chosen for a tax audit.
- Abusive transactions: The IRS selects returns by pinpointing those associated with abusive transactions, typically with the idea of tax avoidance.
- Information matching: For example, if you report income that is less than your employer, it’s a red flag that something is wrong. That’s why it’s important to double check your numbers before filing your final return.
- Corporations: The IRS chooses to audit tax returns from corporations every year. So, if you’re a business owner, this could happen at random.
Did you receive a notification letter?
Regardless of how the IRS selected your tax return for an audit, you’ll receive a notification letter by mail.
Upon receipt, review it thoroughly to better understand why your return was selected, the process to follow and the deadline for making your first reply.
Depending on the type of audit, you’ll partake either by mail or in-person. For example, if your return turned up serious red flags, the IRS may request that you meet with them in person at a local field office, your place of employment, your home, or your accountant’s or attorney’s office.
The tax audit process can end up in one of three ways:
- The IRS adjusts your tax return and charges additional taxes, penalties and interest as they see fit. From there, if you accept the changes, you’re responsible for paying the money.
- The IRS verifies the original information, concludes that you did not make a mistake and the process comes to an end.
- The IRS decides you owe additional money, and you decide to appeal the decision.
It’s your hope that the process comes to a fast conclusion, without you owing any additional money. If it doesn’t, don’t hesitate to learn more about your legal rights and how to file an appeal.