Finance tips how an irs audit works

Posted: 02/09/2007--25/11/2008 || Rate this Article: 3 || Views|| Sign In || Register ||Hello Guest

If youve been chosen to be audited by the IRS, dont panic. Call your tax advisor, get your papers in order and prepare for it the best you can. If you have nothing to hide, it will all come out, but if somehow taxes were not paid when they should have been, you have a little to be concerned about. You have a right to ask the auditor why your return was chosen for the audit. There are several different reasons why a return is selected. First of all, returns are given a numerical rating for the purpose of determining if someone should be audited. This score is based on factors such as owning a business with higher debits than credits, high entertainment or travel expenses claimed, or unusually high auto expenses. Besides scoring high, your return could also be audited because of your relationship to another person who is being investigated or because your return falls into a group that the IRS are studying, such as small business owners whove claimed certain exemptions. Although you have the right to ask the auditor the reasoning behind your being audited, you will still have to go through with the audit. You are allowed to have representation with you during the audit, such as your tax advisor or the person who filled out your return.

There are different kinds of audits, such as a correspondence audit, where the IRS requests from you, by mail, copies of certain cancelled checks or receipts proving certain claims that you filed. An office audit can also be done, for which youll receive information by mail as to when and where the audit will be held and what types of documents you need to bring at that time. If you own a business you might be selected for a field audit, where the auditor requests to do the audit at your place of business. You will be informed of what day and time to be at your place of business and what documents to have ready upon the auditors arrival. Your tax representative can request that this type of audit be held at his or her office rather than at your place of business, but this is up to the IRS agent.

Most of the questions that the auditor asks should be answered by your tax advisor, which is what you pay him or her for. They are the ones who are responsible for advising you on what claims to make. And, the auditor might even want to go back several years, so be prepared, of possible, to provide the auditor with years worth of receipts, cancelled checks, invoices, bank statements or whatever might be required. Failure to provide this information can land you in serious trouble with the IRS and if you cant substantiate your claims, the claims will be denied, leaving you with money owed to the IRS and possible penalties and fines. If you are required to pay any taxes or other charges, pay them as promptly as possible rather than postponing the bill until even more trouble arrives.

Arrange all of your paper work to cut down on the amount of time it will take for the audit. Put all checks in sequential order and arrange invoices and receipts by dates. The more organized you are the less likely it will appear that you have made a mistake. Dont miss your appointment or show up late, since this might irritate the auditor, causing him or her to broaden their scrutiny of you and your records. Showing up on time with everything organized gives the appearance that you have nothing to hide. And you dont, right?