by Elizabeth Buchwald
You finally finished your tax return and just when it’s finally off your mind, you get a letter from the Internal Revenue Service letting you know you’re being audited.
Not all audits result in you having to pay more money to the IRS. Nevertheless, you may panic if get a letter. Are you going to have to pay a big fine? What does the IRS know about you that you don’t?
Chances are you didn’t do anything wrong knowingly. And despite the IRS’ reputation, the agency knows people make mistakes and aren’t trying to punish pure human error, says Erin Collins, National Taxpayer Advocate at the Taxpayer Advocate Service division of the IRS.
They also know that people don’t love paying taxes and in some cases will purposely evade paying what they owe. That’s the primary reason why the IRS audits the tax returns of individuals and businesses, Collins said.
Tax audit definition
A tax audit occurs when the IRS wants to take a closer look at your return to ensure you’re paying the correct amount you owe. As a result, you may have to share additional information like receipts to prove that you are eligible for a credit or deduction you claimed on your return.
How long should you keep your tax records in case of an audit?
Generally, the IRS recommends hanging on to your tax documents for three years and employment tax records for four years. But there are various circumstances where it recommends you keep them for a longer period of time.
How long does an IRS audit take?
There’s no standard length of time an audit takes, the IRS says. That’s because it depends on the complexity of the return and the factors that may have triggered the audit. The length of time it takes to complete an audit can also depend on how accessible the information you need to present is, the availability of both parties for scheduling meetings and whether you agree with the findings uncovered during the audit process.
How far back can the IRS audit you?
An audit the IRS conducts on you can include returns filed within the last three years, according to the IRS.
“If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years,” a post on the agency’s site states. “The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly, most audits will be of returns filed within the last two years.”
IRS audit phone number
The IRS doesn’t have a phone number dedicated to handling audit inquiries. You can use the general IRS customer service number, (800)-829-1040, to speak with an IRS agent about your audit.
Where do IRS audit letters come from?
The IRS will always reach out by sending you a letter in the mail. It will never inform you of an audit by calling or emailing you. If you are contacted that way initially it’s likely fraudulent. That letter will contain all the information you need to know about your audit as well as when you have to take action.
Most audits then continue to be conducted through mailed correspondences but a small percentage of audits require you to communicate with an IRS agent either in person or over the phone to rectify your return.
What does an IRS audit letter look like?
Here’s a sample of a letter the IRS could send out to a taxpayer letting them know they’re being audited. The letter will contain all the information you need to know about your audit as well as when you have to take action.
It’s important to make sure all your personal information such as your Social Security number, address and contact information are correct. If you haven’t already, you can create an online account with the IRS where you can view digital copies of notices you have received.
What should you do if you get audited?
Your first course of action should be to “actually open the letter,” said Collins. A lot of people may be tempted to toss them because they think it’s going to be bad news, she added.
“The worst thing you can do as a taxpayer is to ignore the correspondence.” You should respond as soon as you can either in writing or by phone. Generally, the letter you receive from the IRS will specify how many days you have to respond. You can also request more time to respond.
Failing to respond can trigger additional penalties and interest. You may also forfeit your ability to contest the charges the IRS believes you owe. It could also escalate matters and result in a legal case.
“Once an audit has begun, it is imperative that you cooperate and develop a good relationship with the IRS auditor,” said Michael Steffany, a senior tax attorney who specializes in compliance cases at Withersworldwide. “Far too often, taxpayers take an aggressive posture which leads to audits spiraling far afield from where they began.”
“In addition, where possible attempt to understand what the IRS is actually questioning and answer those questions in a specific and thoughtful way,” he added.
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