Question: What determines whether my return will be audited?
Answer: The IRS uses various programs and techniques to determine which returns are audited, including:
Matching programs. Information returns (such as Forms W-2 and 1099) are matched to your tax returns, using your social security and other identifying numbers. Discrepancies usually generate an IRS notice requesting you to explain the differences. Unclear or evasive answers can generate a tax assessment, or you may be summoned to the local IRS office to explain the differences to an auditor.
Statistical analysis. The IRS uses computer software to analyze hundreds of variables to arrive at ratings (called DIF scores) for tax returns. The program compares actual returns filed to “typical” taxpayer profiles. Unusual features, such as higher than average deductions, result in higher DIF scores, which increase the likelihood of an audit.
Occupation. According to the IRS, returns filed by certain taxpayers, such as self-employed individuals and farmers, understate taxable income at a higher than average rate. Therefore, higher percentages of these returns are audited.
You can reduce your chances of being audited by filing an accurately prepared return with appropriate supporting documentation.
Question: How can I reduce my chances of being audited?
Answer: If you want to reduce your chances of being audited, make sure your return is accurately prepared. Attach supporting documentation to your return for any extraordinary items.
Question: How does the IRS conduct an audit?
Answer: The IRS conducts three types of audits:
Correspondence audits are handled entirely by mail. They consist of written questions about apparent errors, such as filing status discrepancies or wages reported on a Form W-2 that do not appear on the wage earner’s tax return. Unclear or evasive answers can generate a tax assessment or escalate the case to an office audit.
Office audits begin when a taxpayer is summoned to the local IRS office to meet with an agent. The notification letter specifies the items to be examined and asks the taxpayer to bring certain records to the meeting. Although office audits are generally limited to specific items requested, the agent can expand the scope if the taxpayer’s explanations raise additional questions.
Field audits may be conducted at the taxpayer’s business or at an accountant’s office. All pertinent taxpayer records must be available at the chosen site. The examination will cover all tax-related activities for the years under audit.
Call us when you receive a letter from the IRS. We will advise you, respond on your behalf, and represent you if you so desire.
Question: How many years can the IRS go back to audit my tax returns?
Answer: Generally three prior years are open for audit. But if the IRS identifies a major exclusion of income, they can go back more years, but generally not more than six years. If you have not filed a tax return for a certain year, there is no limit to the number of years the IRS can go back.
Question: How will I be notified if my tax return is selected for an IRS audit?
Answer: If your tax return is selected for audit, the IRS will notify you in one of two ways: by mail or by telephone. If the initial contact is by telephone, you will also get a mailed notice as a follow-up. The IRS never uses e-mail to notify taxpayers about an audit.