Taxpayers at some time or another have heard of an IRS audit. Now more than ever taxpayers are being placed squarely in the crosshairs of the IRS. Statistically speaking 1 in 80 people get audited, over a lifetime what that translates into is that almost every American will be audited at some point in there lifetime by the IRS. With that being established taxpayers need to maintain there records and not take excessive deductions.
Being red flagged by the IRS for an audit is not some fluke of nature. Taxpayers that are selected have either entered erroneous information or have made fraudulent claims or deductions on their tax returns. The primary deciding force in who gets an audit and who does not is the IRS computer located deep in the national headquarters of the IRS. The IRS's super computers score each tax return and compare them against standards and tolerances set forth by the IRS. When your tax return scores outside of these tolerances your tax return is flagged for review and hence enters the audit pool.
Inside the IRS audit itself the IRS determines if what you reported as your income and deductions are correct and not fraudulent. The taxpayer is left with the burden of proof to defend every deduction and every source of reported and unreported income. If the IRS determines that you made erroneous entries you will be assessed additional penalties and interest. Once the IRS initiates an audit 85% of the time they find an error, due mostly to unsupported documentation.
The type of audit that is handed down from the IRS depends primarily on the dollar amount of the tax debt owed to the IRS. Typically the more that is owed the IRS the more personal and aggressive they become with you. From a regular correspondence audit to a highly intrusive field audit, one thing is sure the IRS will get there money one way or another.
This type of IRS audit is the most practical of the IRS. In this situation the taxpayer owes little or no money usually 25,000 or less. This type of audit is conducted usually by mail, with all requested documents replied back to the IRS thru the US postal system. Normally the IRS wants supporting documentation for certain items that you listed on your tax return. Most commonly they are looking for unusual real estate transactions, stock purchases, and deductions. As long as you can produce the supporting documentation your file is closed out. If you can not you will be charged penalties and interest and be expected to pay immediate or work out a payment plan with 6% interest.
An IRS office audit is a more personal type of audit, Typically when this audit is engaged the IRS has significant supporting documentation that you have entered erroneous information in excess of thousands of dollars, The IRS will set up a specific time and date to come into there office with all your supporting documentation so that they can do a through investigation of your claims. During the Office Audit be prepared to rebuttal all questions as to every deduction and entry on your return. When you are brought in for an office audit, the taxpayer needs to consider if they need to be accompanied by a competent tax attorney.
This is the most intrusive of all audits. This type of audit in any form is not a good sign.. A field agent will show up unexpectedly and ask probing questions as to where you bank, are there any valuables in the house, how much money you have on hand, and how they contact any of your relatives. This type of audit is very serious, only the most seasoned of IRS agents perform these; the likelihood of you outsmarting the IRS in one of these types of Audits is very low. It is highly recommended that the taxpayer retain a tax attorney that specializes in defending against a field audit, if not serious consequences can be levied against a individual or a business.