What to Expect When Being Audited on a Tax Return

Finally, you filed this year’s tax return and now can relax. Then suddenly a letter in the mail from the IRS, an audit. No worries, it is not as bad as it seems.

What is a Tax Audit?

A tax audit is an examination of individual or business income tax returns carried out by the IRS. The examination is to verify that the deductions and income are accurate.

Just because the IRS is auditing a tax return, it does not mean the tax return is wrong. Sometimes it is random selection so that the IRS can make sure everything is correct. In addition, if a tax return looks like there is a problem or if a tax return involves issues with other taxpayers, an audit may occur.

The Steps in the Audit

Step for when the IRS decides to audit an individual or business tax return:

• A letter from the IRS will be received in the mail
• Gather Supporting Documents
• IRS reviews documents
• Agree on an outcome

The letter will have all of the reasons and documentation needed for the audit. In addition, the contact information, like the mailing address for audits completed by mail, for the IRS is on the letter. If there are too many documents to mail other options include scheduling a face-to-face audit with an IRS representative.

Audit Timeline

The IRS tries to audit tax returns as soon as possible after filing. Most will be for tax returns filed in the last two years. However, the IRS can pull returns from the last six years for an audit if needed. The time the audit itself varies from case to case and depends on how much information is needed and the availability of both the individual and the IRS.

Once the IRS has mailed the audit request, 90 days are provided to collect the information and provide it to the IRS. An extension can be filed with the IRS; this request can be mailed to the IRS. After that if it is not resolved then that IRS can request extending the statute of limitations for assessment tax.

Audit Outcome

An audit can end in three ways: No change, Agreed, or Disagreed.

No change: An individual has supplied documentation on all of the concerns and there are will be no changes on the tax return.
Agree: The IRS proposed some changes to the tax return and the individual understand the changes and agrees with them.
Disagree: When the IRS proposes changes, the individual disagrees with the changes. When the outcome is disagree a conference with an IRS manager, or the IRS offers mediation is the next step.

Another option is filing an appeal if time allows it. After all of the information is given and a conclusion is reached, the audit is over.