Few things are as unsettling as a notice for an audit from the Internal Revenue Service. If you have received such a notification, you are not alone. In fact, the agency closed over 700,000 audits in 2022.
You might fear stiff penalties or a harsh sentence over an honest misunderstanding. However, you can make the process easier for yourself with foreknowledge and preparation.
The purpose of an audit
An IRS audit is not an accusation of wrongdoing. Instead, the process is a neutral review of your tax return’s accuracy. The IRS aims to verify that all reported income is legitimate and that claimed deductions, credits and exemptions are valid.
As such, you will not automatically receive an assessment of an additional tax or penalty. At times, the IRS even determines that a refund is due.
Types of audits
IRS audits fall into three categories:
- Correspondence audits typically involve minor issues that you can resolve by mailing requested documents
- Office audits require you to bring requested records to an IRS office and resolve the issue with an agent
- Field audits involve an IRS auditor visiting your home or business
The IRS notifies the people it intends to audit by mail. Read the notification carefully to determine what to expect and the timeline.
Your rights during the process
During an audit, you have the right to receive an explanation of the audit process, to have someone else represent you and to claim deductions that you initially overlooked. You can also request guidance from the agency’s national office on technical matters that arise. If you need more time to organize your records, you may request a postponement.
During the audit, you need only answer the agent’s questions. You do not have to volunteer unsolicited information, but you should be honest in answering any inquiries.
Also, if you believe the agent is treating you unfairly, you can request to speak with that person’s supervisor. Finally, if you do not agree with the auditor’s decision, you can file an appeal.
Facing an IRS audit is intimidating, but you can navigate this challenge. Prepare well and understand your rights to resolve your tax matters and reduce the odds of further complications.