Being the subject of an IRS audit is one of the worst IRS tax problems you can have as a taxpayer. If a taxpayer faces an IRS tax investigation, the Internal Review System (IRS) will examine their financial info and accounts to check for discrepancies and inaccuracies. There is no hard and fast criteria when it comes to selecting taxpayers for an audit. In fact, the entire procedure represents a random selection process, in which the agency’s computer system is employed to flag returns that deviate from the norm. One way to properly defend yourself during an audit and safeguard your interests is to seek the help of an experienced Dallas tax attorney. In this blog, we are going to discuss all you need to know about IRS Audits.
Different types of Tax Audits
There are 3 types of IRS audits:
- Mail audit: Requires taxpayers to provide relevant documentation through mail to back the claims on their return. During such an audit, submitting appropriate proof is most likely to satisfy the IRS and bring the tax investigation to an end.
- Office audit: When called for an office audit, the taxpayer needs to visit a designated local IRS office. Depending on the severity of the issue, they may be asked to answer a few questions raised by a field agent and provide additional documentation. During such audits, taxpayers have the right to bring a tax problem resolution lawyer along with them.
- Field audit: The IRS conducts a field audit at the taxpayer’s residence or place of business. During such an audit, all items on the return may be thoroughly looked at. Covid has decreased the amount of field audits but now that IRS agents are going back to the office, we should see a rise in these cases.
What does an IRS Letter or Notice contain?
An IRS communication will provide the reason why the agency is making the contact, and it will furnish instructions on how to address the issue. If you receive an IRS Letter or Notice and if you agree with the information they provide, you may not have to take any action. But it is advisable to always verify the authenticity of the letter or notice. You should go to the IRS’s website and search for the notice (CP) or letter (LTR) number, typically mentioned on either the top or the bottom right corner of the correspondence. If you can’t find any information about the letter on the IRS’s website, contact the agency directly at 800-829-1040.
If you don’t understand or if you disagree with the message you received, then you should seek out a tax lawyer with IRS experience for help resolving your tax problems right away.
For what reasons can the IRS send a correspondence?
The IRS can contact a taxpayer for any number of reasons. These include, but are not limited to:
- A due tax balance owed by the recipient
- A larger or smaller refund for the recipient
- Questions about the recipient’s tax return
- Verification of the recipient’s identity
- Need for any additional information from the recipient
- Any changes in the recipient’s return
- Any delays in processing of the recipient’s return
What to do upon receiving an IRS letter or notice?
For starters, do not procrastinate. Then you should: read the IRS letter carefully, verify its authenticity, and then decide if you need professional assistance for resolving the IRS tax problem or not. Each notice or letter sent by the IRS typically contains several bits of valuable information. If the letter is a notification about a change in tax return, it is advisable to compare the information provided in the communication with the information in their original tax return.
Should you respond to an IRS letter or notice?
After you have determined whether you agree with the IRS or not, you must take action soon. Some notices and letters from the IRS require a response by a specific date. In such cases, the response must be sent before the due date to minimize the probability of any additional interest and penalty charges being assessed by the IRS. Your response can help to preserve your appeal rights if you disagree with the contents of the letter or notice.
You may contact the IRS directly, but that is not always the best way to handle such an IRS tax problem. An experienced tax lawyer is the best person to ask for help and problem resolution.
Can a partial payment be made to the IRS?
The IRS strongly encourages taxpayers to pay as much as they can, even if they are unable to pay the full due amount. A taxpayer can make the payment online, but if they are not in a position to make any payment, they can consider applying for debt relief options like Online Payment Agreement or Offer in Compromise. Contact a tax relief attorney in the Dallas-Fort Worth region for legal tax advice on choosing the right program.
Documents you must keep handy during an IRS Audit
Here is a list of documents that you may need to show the IRS panel during an IRS tax investigation:
- Loan agreements
- Canceled checks
- Employment documents
- Medical and dental records
- Insurance documents
Your rights during an Audit
Before you attend an IRS audit, you must be aware of your legal rights. Some of the rights you are entitled to during an IRS audit include:
- Right to quality service
- Right to be informed
- Right to pay no more than the correct amount of tax
- Right to challenge the IRS’s position and be heard
- Right to appeal an IRS decision in an independent forum
- Right to finality
- Right to confidentiality
- Right to privacy
- Right to retain representation
- Right to a fair and just tax system
What to expect from IRS Audits?
In most scenarios, the IRS generally audits returns that a taxpayer filed during the last three years. However, in cases where major errors are discovered, the IRS may add more years to the audit inquiry. The overall duration of an audit mainly depends on the severity of the case, cooperation of the subject of IRS tax investigation, and whether you agree with the tax agency’s findings. If the IRS determines that your returns are inappropriate, it may impose penalties, in which case, you might have to pursue legal action. It is advisable to hire one of the leading Dallas-Fort Worth tax attorneys for the best IRS tax problems resolution.
Appealing Your IRS Audit
Even though the IRS is often demonized, it gives every taxpayer a fair chance at a just outcome. If a taxpayer is not satisfied with the findings of IRS auditors, they can file a reassessment through the Office of Appeals, which is a separate entity from the IRS. The Office of Appeals, which comprises more than 2000 former tax auditors located across the US, holds the right to overturn or modify the findings of an audit to the taxpayer’s favor.
How to Appeal an IRS Audit?
After the completion of an audit, the IRS sends a detailed report to the taxpayer that outlines the findings and subsequent interest, penalties, or taxes. The first step in the process of filing an appeal is not signing and returning your copy of the report. If you do not accept the report, you will receive a 30-day IRS appeal letter explaining how to appeal the audit, which you must do within 30 days of the date of the issuance of the letter.
What Information needs to be included in the Appeal?
When appealing an IRS audit, make sure you include all the required details: your name, address, and telephone number; a formal statement containing a list of each proposed item with which you disagree and your reason(s) for the same; a copy of the letter you received and the tax period or year in subject. Additionally, you are also required to mention the law or authority that supports your position on each disagreement and a penalties-of-perjury statement followed by your signature under the statement.
How to Prepare for the Hearing?
The IRS usually gives taxpayers at least 60 days to prepare for the hearing after submission of the appeals request. You can use this time to collect and organize all the details pertaining to your appeal and the arguments you intend to present during the hearing. Be sure to prepare copies of all relevant receipts, financial statements, and any other forms you may need to prove your case. It is advisable to provide a clear breakdown of all the information on a spreadsheet that is easily comprehensible to the appeals officer.
How to Present the Case?
When it comes to presenting your appeal during the hearing, it is important to have an outline of the statements you want to make and to go through your points before the beginning of the proceeding. During the hearing, be sure to clearly identify all errors you believe the IRS auditor committed during the audit, without bad-mouthing the auditor or the IRS. Make sure you either record the session or note down the statements made by the appeal officer during the hearing, you may need the information later.
Appealing an IRS audit can be a tricky IRS tax problem for most taxpayers, which is the reason why it is important to have an experienced IRS tax attorney for help on your side, who can guide you in the right direction and help draw a favorable outcome.
Myths About IRS Tax Audits
In this section, we debunk five myths related to IRS tax audits. Let’s get started.
1. Filing tax returns at the end of the year increases the chance of tax audits
The IRS does not consider elements such as the date on which a taxpayer filed their tax return when deciding to audit them. IRS audits, in fact, usually start from July. So, even if you used an extension to file your tax returns, that does not trigger the IRS to audit you. Filing an extension can, in fact, help you avoid a tax audit, by providing you with more time to correctly prepare your tax returns.
2. The IRS does not audit taxpayers with moderate income
While rich taxpayers usually have more chances of facing IRS tax audits, reports show that the IRS also audits taxpayers with low to moderate income. Data reveals that there has been an increase in the number of audits for middle class people. According to Time, even if you earn less than $2,00,000 a year, you have a 26 percent risk of getting audited over a period of 30 years.
3. Taxpayers who file for tax credits and deductions have a higher chance of facing tax audits
False. Claiming and using deductions such as education credits does not mean the IRS will audit you, unless the central tax authority finds some unusual claims, for instance, charitable deductions that exceed your income. Many people fear that a home office deduction increases the chance of an audit, which is untrue. Any long list of deductions does not trigger an IRS audit unless the IRS finds something unusual. If you find yourself confused, call us and schedule a free, no obligation consultation for credible information on any IRS tax problems by our experienced tax lawyers.
4. E-filing increases the risk of audits
The IRS, in fact, encourages taxpayers to e-file their tax returns, as taxes filed in this way have been found to be 20 times more accurate than tax returns filed on paper. The fact that 90 percent of people e-file their tax returns these days proves that e-filing has no relation with increasing the risk of tax audits.
5. Amending tax returns may trigger an audit
Although the IRS will screen the information any time you amend a tax return, it does not call for an audit. In fact, correcting the mistakes on your tax returns by filing another return can prevent you from the possibility of penalty or interest. An IRS tax problem may arise if you do not present a correct picture of your income and taxes to the IRS. So, do not be afraid, and when you need to amend a tax return, do take the step.
The IRS has the right to audit any taxpayer they want, but this does not state that an audit would lead to levy on your assets. It is true that if you owe the IRS, they will take certain steps to get their money, however, audits don’t just happen overnight. Even if the IRS decides to audit, you have certain rights to make sure they treat you fairly. IRS tax debt lawyers can help explain your rights and suggest the best ways to survive tax problems like IRS tax audits. When looking for tax attorneys in Dallas or Fort Worth, TX, look no further than the Law Offices of Nick Nemeth. As a reliable tax law firm in Dallas, we offer some of the best IRS tax help to the Dallas-Fort Worth community. Contact us today for a no-obligation consultation at (972) 426-2991 or fill out our contact form.