This is the fourth and final installment of the short "Intro to Tax Relief" series, presented by Tax Defense Network. You can learn more about them by reading their full review.
When you're notified you've been selected for an audit, time doesn't stop, but everything slows way down. It's a sickening feeling, being under the scrutiny of the IRS, even if you have nothing to hide. It's also natural to automatically assume the worst, as you begin imagining enormous tax penalties or possibly jail time. While you should certainly be concerned and prepared for your financial review, there's not necessarily call for alarm.
People are selected for audits for a variety of reasons. If there's a discrepancy between the taxpayer's reporting and what's provided by his or her employer, this could be a red flag. Neglecting to report taxable income is another trigger for an audit. Sometimes, returns are chosen entirely at random for a review. There's a good chance that your audit will be painless and uneventful, especially if you've kept up with your records.
No matter what happens, it's smart to learn ahead of time what to expect if you have to talk with an IRS agent:
You're notified of an audit either through the mail or by phone. The review may take place in your home, your workplace or your accountant's office (assuming you have one). The IRS may even determine that the audit can be conducted through the mail, depending on your circumstances. If you do meet with an agent, the time will be set according to his or her availability and your schedule.
You'll be told in advance what documents to collect. As a rule of thumb, tax return records should be kept for three years after filing. It's possible that your audit will extend further back than that but you'll be informed what documents you'll need to find. How long the examination takes depends on the complexity of what's being reviewed, how quickly you can schedule and complete meetings with your examiner and whether or not you agree with the final assessment.
There are a couple of different outcomes you could expect: either the IRS concludes that everything you filed is valid and no changes are needed, or there are discrepancies that may or may not result in you owing money. Depending on whether or not you agree with their determination, you have the option of speaking with a manager or submitting an appeal.
It's possible that an assessment from the IRS concluding that you owe money will be accurate, even after an appeal. Again, this isn't necessarily a cause for panic. Depending on what, if any, debt you owe, you may have the option to pay the amount back in installments rather than all at once. Understand that the government wants you to pay your tax debt, but won't expect you to incur a financial hardship in the process.
Hopefully, your audit will end without incident and without a tax debt from return errors. Enduring a review of your income isn't exactly a welcomed experience, but it's not the end of the world either. Even if something is discovered to be amiss, you still have options available to ensure the resolution is quick and painless.
It might be smart to enlist the help of a licensed tax professional, particularly if you end up with a tax debt over $10K. Such an individual can review your installment plan options with you and set up the arrangement directly with the IRS. You will also receive advice on how to file the following year and prevent similar issues from triggering an audit, or possibly another tax liability.
*Written by Christopher Wiggins, Content Writer for TDN.