LUTZ BUSINESS INSIGHTS
Should You Worry About Having Your Income Taxes Audited?
DEYNA ROUSE, TAX PARTNER
You probably have mixed emotions as you sign your income tax return. There’s certainly a feeling of relief. But you may also be wondering whether you reported everything accurately. Did you miss some income? Take a deduction you shouldn’t have? What if you get audited?
There are certainly red flags that alert the IRS to potential problems in returns, but not all audits are based on that suspicion. In fact, some are based on random selection and computer screening. The agency uses a statistical formula that compares your return to what it considers the “norm” for similar returns. You may also be selected if your business partners or investors are subject to an audit.
How are you notified? What will the IRS want to see? Here’s an overview.
…will never notify you about an impending audit by email or phone.
You will receive a letter in the U.S. Mail. Beware of phone scams perpetrated by individuals pretending to be from the IRS and demanding payment immediately.
…conducts audits via U.S. mail or in person.
If the audit is going to proceed through the mail, the IRS will tell you what items it needs to see (records of income, expenses, itemized deductions, etc.). You can also request an in-person audit, which would occur at such locations as your home, your place of business, an IRS office, or an accountant’s office. You’ll receive written instructions in a letter.
…will send a written request for the documents it wants to see.
You’re required to keep copies of all documents used in tax preparation for at least three years from the filing date. These may include:
- Receipts and bills,
- Canceled checks,
- Legal papers, and,
- Medical/dental records.
If you used tax software, the IRS may accept some of these records electronically. In any case, organize your documents as thoroughly as possible to accelerate the audit process.
…usually only audits tax returns filed within the previous three years.
Actually, it will probably be closer to two. But the agency can go back as far as six years if it discovers a “substantial error.”
…reaches conclusions on audits in one of three ways.
- No change. After all items are reviewed by the IRS and substantiated by you, the IRS lets your return stand as is.
- The IRS suggests changes and you agree to accept them.
- You understand why the IRS is suggesting changes, but you don’t believe that they should be incorporated into your tax return.
…offers ways for you to appeal a decision.
If you disagree with the agency’s findings, you have three options. You can ask to confer with an IRS manager or file an appeal. You might also consider going through the IRS’ Alternative Dispute Resolution (ADR), a kind of mediation.
ABOUT THE AUTHOR
DEYNA ROUSE + TAX SHAREHOLDER
Deyna Rouse is a Tax Shareholder at Lutz with over 15 years of experience in taxation. She leads the IRS audit consulting and representation efforts at Lutz and regularly advises on IRS collections and procedural issues.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, with highest distinction, Creighton University, Omaha, NE
- Great Plains Federal Tax Institute, Board Member
- Gesu Housing, Board Member
- Friends of Nebraska Children, Board Member
- Rose Theater Guild, Board Member
- Nebraska Children & Families Foundation, Past Board Member
- Junior League of Omaha, Past Board Member
- Junior League of Omaha Foundation, Past Board Member
- Literacy Center of the Midlands, Past Board Member
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