June 28, 2021
IRS Audits: Fact and Fiction

They are rare and not as complicated as they are made out to be.

An IRS audit is a process full of misconceptions, myths and misunderstandings.

There is a general notion out there that the IRS lurks around every corner, initiating many audits: lengthy, complex scenarios.

But it may surprise many taxpayers to know that only 0.6% of individual tax returns were audited by the IRS in 2018. Audits are uncommon. Audits are an IRS review of your personal or business finances to ensure that your federal income tax return was correct.

Almost all audits are done through the U.S. Postal Service. (The IRS does not send representatives in suits to your office, unannounced, like in the movies.)

IRS audit truths

Just to clear up some of the mystery surrounding IRS audits, here is what to expect:

-You will get a letter about your audit from the IRS in the mail. The IRS will not contact you via email or call you on the phone (scammers often use these means of communication, pretending to be the IRS).

-The IRS doesn't demand the last 15 years of your tax documents. They generally go back up to three years for a tax audit. If there are notable errors on a tax return, they may go back six years.

-If you disagree with an IRS audit decision, you can appeal.

-Almost always, the entire audit is done via mail. You respond to the IRS with requested documents within 90 days and can even request an extension.

What triggers an IRS audit?

Sometimes, there is nothing at all that triggers an audit. It doesn't mean you made a mistake in the eyes of the IRS.

Other times, a computer algorithm can flag your return if it has information that is markedly different from the year before. Maybe your income increased significantly, but everything else stayed the same, for example. Or if your business partner is audited by the IRS, you may be audited as well.

Sometimes, though, the IRS just audits taxpayers at random. It's to be sure it's own systems are in check. They are generally simple and straightforward.

What doesn't cause an audit

IRS audits are not caused by math errors, which are often fixed by the IRS on the receiving end. If you are missing a form, the IRS will send you a letter asking you to file it, not audit you. Audits are also not triggered by filing late in the tax season or by filing too many deductions or tax credits. Filing online, with an accountant, via e-file or paper return has no bearing on your chances of being audited by the IRS.

IRS audit tip:

In the unlikely circumstance that you get audited by the IRS, respond to the audit letter as quickly as possible, responding to the letter's instructions. Remember to make copies of whatever documents you mail to the IRS that they have requested.

Susan Shalhoub

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