IRS Audits

When the Internal Revenue Service (IRS) conducts an inquiry into your financial affairs and challenges any tax returns that you may have filed, you are being subjected to an IRS Audit. An IRS Audit is one of the most nerve-racking times in the life of a taxpayer. According to statistics, your chances of being audited in any given year are only 1% but your chances of being audited in your entire tax-paying life are as high as 50%.

To audit any tax returns, the IRS has a time limit of 3 years from the date the return was filed or the date on which it is due (usually April 15) whichever is later. For instance, if you file your 2004 returns on or before April 15, 2005, the IRS has only up to April 15, 2008 to audit this return. Once that date has passed, the return for 2004 is closed to the IRS for any audit purposes.

Consequences of an IRS Audit

• It is very rare not to have to pay additional money for taxes if you are being audited. The IRS usually conducts an audit of a tax return only if they see some invalid deductions or other expenses and know that the audit will result in a tax bill.
• An audit will result in a tax bill that you will have to pay in addition to your regular taxes. If the tax report is not agreeable to you, you can file an appeal with the IRS within 30 days of receiving the report. In case your appeal is not successful and your tax bill is under $50,000, then you should petition the TAX Court. For a tax bill that is over $50,000, it is best to enlist the services of a tax attorney.

Avoiding an IRS Audit

• File all your tax returns and do so on time.
• Don’t just file the returns, but also pay your taxes on time.
• Take only those deductions and expenses that you are eligible for.
• If there is any ambiguity about any item pertaining to your return, consult an accountant or a tax lawyer to help you in filing your returns.

Even after taking the above precautions, there is no guarantee that you will not have to face an IRS audit sometime in your life. The following are some tips to deal with the IRS audit.

Dealing With an IRS Audit

• Try and persuade the auditor that you have disclosed all your income and have taken only those deductions and expenses that you thought you were entitled to.
• Do not let the IRS conduct the audit in your house or at your workplace. Either go to the IRS yourself or have them come to your attorney’s office (if you have one).
• Putting off the audit generally works in your favor, so try and ask for some time to prepare for the audit.
• Cooperate fully with the auditor but do not supply any information unless specifically asked for.
• If you feel you have something to hide, do not volunteer that information. But if asked about it, do not lie either.
• Never give your returns of those years which the audit is closed for, or else the auditor can make adjustments in those returns as well.
• If you are under audit and the auditor is not in touch with you; don’t do anything. The more time that passes, the more beneficial it is to you as the three year time limit may come and go and you will then not be audited for those years.
• Do not file returns for the current year if an audit is still pending. These returns may also be taken into the audit.

It is always a good idea to have a tax attorney if you are being audited or an audit is imminent.