Do you find yourself thinking “what happens when I get audited by the IRS”?
The thought of owing money to the IRS is enough to put the fear in most people. But what scares people more is the thought of an IRS audit. And if you’ve never had one before, it can be a frightening, stressful prospect.
Don’t worry, it doesn’t have to be scary! Read on for our guide to what happens when you get an IRS audit to put your mind at ease.
How Do I Know If I’m Getting an Audit?
There are a number of reasons you may be audited. These range from simple math errors to failing to declare some income.The IRS will notify you by mail if they select you for an audit. This letter will give you contact information and instructions to follow in detail.
They never do this by phone or email without first contacting you by mail. They won’t ask for any passwords or access of that kind either. Don’t give any passwords and only give personal information to an actual IRS auditor.
What Do I Need For My Audit?
In the letter they send you, the IRS will request specific documents they need. By law, you must keep all records you used to file your taxes for at least 3 years from the filing date.
This is because the IRS can order an audit within that last 3 year period at any point. You must be able to present them with the relevant documents. They may also want to view extra years if they find any major errors.
To be on the safe side, it’s advisable to keep hold of records dating back over the last 8 years. But 6 years is usually the longest time frame they’ll investigate.
What Happens During an Audit?
The IRS goes over your records either by mail or on rare occasions via in-person interviews. Don’t worry, we were only joking about the door bashing, we promise! Interviews in person will take place at your local IRS office (office audit) or in your home (field audit).
With mail audits, they’ll ask for extra information about specific items and entries. If you feel you have too many records to mail back to them, you can request an in-person interview.
Types of Audit
There are 3 main types of audit — mail, office, and field audits. We’ll detail them a little more below.
More than 75% of tax audits are mail audits. Sometimes, they’re referred to as correspondence audits. Often, they will come up when the IRS wants you to give a certain extra document(s) to back up your tax return.
In most cases, providing this document(s) will be enough to get the man off your back. It’s likely you won’t ever have to confirm if the IRS are actually human, or trolls waiting at their office desks under a toll bridge.
In some uncommon cases, you might have to go for an in-person audit at your local IRS office. This is an office audit and usually is because they need a more detailed explanation. Documents and receipts can only say so much.
If you’re called in for this type of audit, you’ll need to bring the documents along with you that they ask for. You’ll also have the right to have an accountant or attorney there with you. This isn’t as scary as it sounds though, it’s peace of mind and most of the time not necessary.
Out of the trio of audit nightmares, field audits rank as the most daunting of the bunch. This is what makes people’s blood run cold — the IRS coming through your door, torture tools at the ready.
A field audit usually occurs when the IRS needs to conduct a more in-depth review of your return. These often only happen when your return presents some major errors. Though sometimes, it may be because there are a lot of queries the IRS has and it’s easier to come to you.
Making It Through an In-Person Audit
Remember, this is uncommon unless you request it. But if you unlucky enough to end up with an in-person interview it’s fine to worry. This is an intimidating process for even those with nerves of steel.
For this reason alone, it’s worth bringing your accountant or attorney along. They can help guide you through, and with any luck, will handle most of the talking. If you are going alone though, here’s how to conquer your fear.
Whether it’s an office or field audit, first get organized before. Have all your documentation and records prepared and ready to present. But only present relevant information to the questions they asked. You don’t want to open any extra cans of worms by accident.
When meeting the IRS agent, don’t be rude or argue too much. Even if you have nothing to hide, you’ll give the impression of being too defensive. This could make the agent more suspicious.
A lot of the time, it’s a painless, easy, quick process. It’s more of a box-checking exercise than the Spanish Inquisition. If you’re honest and helpful, you’ll stand a good chance of coming out the other side with all your fingers and toes.
What Outcomes Should I Expect?
There are several outcomes you could expect. In some cases, your documents will answer their questions and your return is ok. In others, the IRS may propose changes to your return. You will have the right to agree to them or challenge them. Often, this will mean that you have to resolve back taxes that you owe the IRS.
Almost 90% of audits do result in a change to the original return. But those changes could work in your favor. If they find you overpaid your taxes, they will refund you. See, the IRS isn’t always the bearers of bad news after all.
“What Happens If I Get Audited by the IRS?” — It Doesn’t Have to Be Scary
So there you have it! Now you know the answer to “what happens if I get audited by the IRS?”, it doesn’t have to be scary.
Make sure you’re prepared and have a record of 6-8 years of returns and supporting documents to hand. If you get your letter, follow the instructions and be helpful and polite. But keep it relevant to the questions asked. And most of all — don’t panic!
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