What Is A Tax Audit And What Tax Audit Defense Options Are There?
IRS Tax Audit Defense
During an IRS tax audit, there are several strategies available to protect your assets and find your way to a reasonable resolution. These audits are complex- representation from a CuraDebt tax expert will help you stand behind a strong tax audit defense strategy. Our tax professionals will provide the expertise needed to minimize any financial damage from your audit. Having a tax professional by your side will ensure that you will face the IRS with the strongest audit defense strategy possible. We will be by your side from the first notice until the audit comes to completion. With CuraDebt, you don’t have to experience this alone.
What is an IRS Tax Audit?
Who’s afraid of an IRS tax audit? Nearly every taxpayer. If you or your business has been chosen for an IRS tax audit, you are rightfully dealing with a very stressful experience. An audit does not automatically mean that you have made a mistake or that you will owe money. The key to navigating through an audit is a strong tax audit defense provided by a tax professional. No one wants to experience the process of an IRS tax audit alone. Our CuraDebt tax experts can guide you through your audit experience with the best audit defense possible.Once you file a tax return with the IRS, auditors have up to 3 years to audit your return to assess additional tax. Upon receipt of a notice of an IRS tax audit, you should gather your applicable records and previous tax returns so you have an accurate idea of your tax history. After this notice, an examination may be conducted by mail or in-person through an interview and review of the taxpayer’s records. The interview may be at an IRS office or at your home or place of business.
You may not actually know why you or your business were selected for an IRS tax audit. The audit notification letter will generally tell you what documents or records are needed. Nevertheless, you and/or your tax return preparer will have to explain the numbers behind your tax return(s) under an audit. With adequate preparation and CuraDebt tax professionals at your side, you can survive an IRS tax audit with minimal financial damage.
What is the IRS Looking for in a Tax Audit?
The IRS routinely reviews individual and business tax returns to determine whether tax information is being accurately reported. Individuals or businesses selected for audit are generally chosen at random; however, certain things, like obvious abusive tax avoidance activities, can often times trigger an audit.In general, IRS auditors examine about one percent of all income tax returns. Whether your return is at higher risk for audit depends on the type of your return and income level. Any type of return can be audited for a myriad of issues, from regular income tax to payroll issues. No matter what type of return you filed, you should be prepared to substantiate the return with adequate records and documentation.
The IRS has the right to inspect any applicable records or books that were used to prepare your tax return. Under Internal Revenue Code §6001, the IRS has the authority to require any person to produce these documents or records to show whether or not such person is liable for tax. In order to prepare, CuraDebt tax professionals can help you organize your applicable records before the initial audit meeting with a tax audit checklist. This tax audit checklist will be crucial in organizing your applicable records and refreshing your memory in regards to that tax year.
This tax audit checklist should include:
- Your tax returns under audit
- Applicable financial statements
- Check Register
- Anything that will help you put together a full financial picture of what took place during that tax year
You should take the time to familiarize yourself with your return from that tax year so you can feel more comfortable when presenting information to the auditor. If you used a tax preparer, it will be helpful to meet with them so you can both go over the return together and see if anything possibly triggered the audit or if you were just randomly selected. With the assistance of CuraDebt and your tax preparer, you can feel more adequately prepared for your initial audit meeting.
You should be aware that these auditors are examining your lifestyle in addition to your tax return. In many scenarios, the auditor will look to see how you match up with the income reported on your return. For example, if your business is audited for self-employment income, the IRS is more than likely to investigate your lifestyle. If you cannot substantiate the numbers from your return with some applicable records, then try to put together a reasonable explanation with your tax preparer.
How to Prepare Your Records for an IRS Audit
During an IRS tax audit, the auditor will request to see your applicable financial records and books. However, businesses should be aware that the tax code does not require small businesses to keep a formal set of books; at a minimum, even a checkbook and cash register tape is acceptable. If more formal record-keeping exists, such as ledgers and journals, you will have to turn them over. Simply hiding these records from the auditor will make the situation worse. Without adequate records, the auditor can estimate your income and/or expenses and impose a separate penalty for a failure to keep records.
What Happens if the IRS Auditor Uncovers Items I Cannot Substantiate?
When you offer any sort of documentation or information to the IRS, you could be putting yourself in a vulnerable position. It is vital to have help through this experience with a tax professional that can provide a tax audit defense. Your information could bring to light other issues that the IRS did not see before (prior year returns, other businesses, etc.). You must submit all documentation required, but it is a delicate situation where you do not want to provide too much information to the auditors. Your records must be handled cautiously and carefully.The best way to handle an audit is to be prepared. If you haven’t maintained records of all transactions, then try to put together a plausible explanation for your financial history. The return items under audit must be substantiated and explained in a clear and concise manner. It will be helpful to remain cooperative and proactive with the IRS during the audit so that there are no misunderstandings.
Solutions for Your Tax Problems
IRS auditors often prefer to speak with tax professionals because we speak their language. Tax professionals streamline the tax audit and make it easier for both parties. IRS auditors are generally relieved when a tax professional comes into the picture because it means that there will be less “hand holding” through the process. Having a tax professional at your side will provide you with the reassurance you need that you are getting a fair treatment from the IRS.It is important to note that if your audit outcome is unfavorable, you will have the option to appeal. You may request conference with the examiner’s manager or appeal their case administratively with the IRS’ Appeals Division. You will have 30 days to appeal the auditor’s decision. After submitting an appeal, you should organize all of your financial records and file a Freedom of Information Act request for the auditor’s records, which will allow you to see what information the auditor has.
Appealing an IRS audit has benefits and disadvantages. In many cases, appealing an IRS audit results in some tax savings. It costs nothing to appeal your audit and can buy you time to consider various payment options or raise the money owed. However, the appeals officer may raise issues the auditor may have missed, potentially exposing you to a higher liability. Lastly, your interest will continue to accrue on your tax bill throughout the appeals process. CuraDebt can walk you through the potential risks and benefits of moving forward with the appeals process.
Rather than run the risk of creating a huge disaster, reach out to CuraDebt—a reputable debt and tax relief company in the business for over 20 years. We can help you manage your tax audit defense today. Contact us at 877-999-0486 for a free tax consultation.