
Audit issues may arise after IRS’ computer compares your tax return (or your business’) to a programmed “norm” and finds that some of the expenses or deductions claimed fall outside of that norm. In some cases, the Examination Division of the IRS may get involved if it obtains information from W-2 forms, 1099s, or other sources which reveal that you or your business have not filed tax returns to report federal income, employment, estate, gift, or excise taxes. In any event, once you or your business have been targeted for an audit, your tax return is forwarded to either a revenue agent or an office auditor who may be located in the District Office which has jurisdiction over your tax return or at one of IRS’ Service Centers.
THE LETTER FROM THE I.R.S.
The initial contact from the IRS’ Examination Division is usually a letter. Receiving an IRS letter which informs you that one or more of your tax returns have been selected for an audit is a jarring experience. It’s akin to having a rug suddenly pulled out from under you. Though it may be a cliché to use that phrase, it’s an apt metaphor to describe the sudden and unexpected impact such a letter may have. The reaction to it varies with each person. Some respond with anger while others put the letter away to avoid dealing with it. Some experience guilt, while others feel remorse. Some busy themselves with other facets of their life in an effort to reaffirm the familiar over the unknown. Most of us experience fear.
THE PROCEDURE
An IRS audit usually involves a meeting with a Revenue Agent or an Office Auditor who asks you to bring records to substantiate your income and expenses. You may have to go to the IRS’ office to meet with the Agent or the Agent may come to your place of business, if the audit is on a business. In smaller cases, the audit may be conducted out of an IRS Service Center, in which case it is conducted by mail, fax and/or telephone.
THE RESULTS
Once the audit is completed, the Agent will either accept the return as filed, or – more likely – send you a letter with the proposed changes. More likely than not, the proposed changes will mean more tax, plus additional interest and penalties. At that point, you can either accept the proposed changes or request an informal conference with the manager. If agreement cannot be reached with the manager, you have a right of appeal to IRS’ Appellate Division. As a last resort, you may file a suit in the Tax Court or the U.S. Court of Claims in Washington, D.C.
THE RECOMMENDATION
When you get that initial letter, we recommend that you retain counsel to represent you. While it will mean additional costs to you initially, it may save you money in the long run. In addition to the costs involved, you should consider the following:
THE LETTER FROM THE I.R.S.
The initial contact from the IRS’ Examination Division is usually a letter. Receiving an IRS letter which informs you that one or more of your tax returns have been selected for an audit is a jarring experience. It’s akin to having a rug suddenly pulled out from under you. Though it may be a cliché to use that phrase, it’s an apt metaphor to describe the sudden and unexpected impact such a letter may have. The reaction to it varies with each person. Some respond with anger while others put the letter away to avoid dealing with it. Some experience guilt, while others feel remorse. Some busy themselves with other facets of their life in an effort to reaffirm the familiar over the unknown. Most of us experience fear.
THE PROCEDURE
An IRS audit usually involves a meeting with a Revenue Agent or an Office Auditor who asks you to bring records to substantiate your income and expenses. You may have to go to the IRS’ office to meet with the Agent or the Agent may come to your place of business, if the audit is on a business. In smaller cases, the audit may be conducted out of an IRS Service Center, in which case it is conducted by mail, fax and/or telephone.
THE RESULTS
Once the audit is completed, the Agent will either accept the return as filed, or – more likely – send you a letter with the proposed changes. More likely than not, the proposed changes will mean more tax, plus additional interest and penalties. At that point, you can either accept the proposed changes or request an informal conference with the manager. If agreement cannot be reached with the manager, you have a right of appeal to IRS’ Appellate Division. As a last resort, you may file a suit in the Tax Court or the U.S. Court of Claims in Washington, D.C.
THE RECOMMENDATION
When you get that initial letter, we recommend that you retain counsel to represent you. While it will mean additional costs to you initially, it may save you money in the long run. In addition to the costs involved, you should consider the following:
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