IRS Tax Audit
Receiving an IRS Audit notice can be terrifying. Most IRS audits are randomly generated just to ensure there are no large discrepancies on your tax return. In other instances, something in your tax return may have raised a red-flag and the IRS just needs to verify it. Regardless of the reason, it’s important that you take action immediately upon receiving the notice to minimize any possible consequences.
Reasons for an Audit
Though there are several things that could trigger an IRS audit of your tax filings, there are common mistakes that could increase the chance that the IRS will want to take a second look at your returns.
- Payroll Tax Deduction – The tax deductions that you reported from the W2 that your employer gives you at the end of the year are compared to the deductions that your employer reported to the IRS themselves…as is legally required of them. If there is any discrepancy the IRS will want to take a closer look at your tax filing to verify if it was just a typo.
- Unreported 1099 Misc Form – Contractors and self-employed individuals must report payments that they receive (above a certain amount) to the IRS. If you receive many payments from clients or customers over the course of the year, you’re required to report them to the IRS using the 1099 Misc form. If you the client files a report with the IRS showing that they paid you however you show know record of payment in your tax filing…the IRS will certainly launch an audit to get to the bottom of it.
- Large Deductions – Large deductions on your tax return is a red-flag to the IRS and may cause concern that you are trying to shift your tax burden.
- Lost Records – You are required to maintain your tax records for a period of time. By notifying the IRS that you’ve lost records, they will immediately be suspicious as to how accurate your return is.
- Negligent Tax Preparation – This is the most common reason for IRS tax audits. Even the simplest tax return has complex deductions or reports to ensure you are in compliance with the tax code. One small mistake or omission can put you on the IRS radar and leave you vulnerable to an audit.
How Can a Professional Help?
Only a Tax Lawyer or a CPA with extensive experience with IRS tax audits can help you once you’ve received an IRS Tax Notice. These professionals know the ins and outs of the IRS Tax Code, the taxpayers bill of rights, as well as methods to reduce your liability should the audit not go in your favor. Some of these methods are:
- Records Reconstruction – An experienced Tax Lawyer or CPA can reconstruct lost records so that they satisfy the IRS’ requirements and put you back into good standing.
- Audit Reconsideration Request – An ARR can be filed on your behalf and asking the IRS to reconsider the audit.
- Audit Negotiation – A professional can negotiate with the IRS on your behalf and, in most cases, receive terms that are beneficial to you.
- Accuracy Penalty Reduction – If you are being audited because of incorrect information, a professional can represent you to have the penalty reduced.
- Appeal – A professional can appeal the IRS Audit ruling on your behalf.
If you are unsure of the accuracy of your taxes, don’t risk an audit, contact a professional.
Jay Finn, CPA provides tax and accounting services to thousands of businesses, business owners, & individuals. Our specialists are experts in tax law, IRS representation, business accounting, & investment strategies to help you and your business grow financially.