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IRS Audits

Watch our video series, Your Guide to an IRS Audit. The video series follows three taxpayers through the steps of an audit, from audit notification to audit closing, illustrates key points and answers important questions about the audit process in a series of 10 lessons. The lessons can be viewed in any order at any time, so take a look to learn all you need to know about working with us during an audit.

What is an IRS audit?

An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.

Publication 556, Examination of Returns, Appeal Rights and Claims for Refund explains the audit process in more detail.

Frequently asked questions are also available.

Audit Selection

Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:

Random selection and computer screening - sometimes returns are selected based solely on a statistical formula.
Document matching - when payor records, such as Forms W-2 or Form 1099, don't match the information reported.
Related examinations - returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

Audit Methods

An audit may be conducted by mail or through an in-person interview and review of the taxpayer's records. The interview may be at an IRS office (office audit) or at the taxpayer's home, place of business, or accountant's office (field audit). The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained.

Audit Notification

Should your account be selected for audit, you will be notified in two ways:

By mail, or
By telephone

In the case of a telephone contact, the IRS will still send a letter confirming the audit. E-mail notification is not used by the IRS.

Your Rights During an Audit

Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes. These rights include:

A right to professional and courteous treatment by IRS employees.
A right to privacy and confidentiality about tax matters.
A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
A right to representation, by oneself or an authorized representative.
A right to appeal disagreements, both within the IRS and before the courts.

Audit Length

The length of each audit varies depending on the type of audit, the complexity of items being reviewed, the availability of information being requested, the availability of both parties for scheduling of meetings and your agreement or disagreement with the findings.

Records Needed

A written request for specific documents needed, will be provided to you.

The law requires you to retain records used to prepare your return. Those records generally should be kept for three years from the date the tax return was filed.

The IRS does accept some electronic records. Contact your auditor to determine what can be accepted to ensure a software program is compatible with the IRS's.

Audit Determinations

An audit can be concluded in three ways:

No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes.
Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.

What Happens When You AGREE With The Audit Findings?

If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.

If money is owed, there are several payment options available. Publication 594, The IRS Collection process, explains the collection process in detail.

What Happens When You DISAGREE with the Audit Findings?

A conference with a manager may be requested for further review of the issue or issues. In addition, Fast Track Mediation or an Appealrequest may be filed.

References/Related Topics

Video References

Rate the Small Business and Self-Employed Web Site

Need a Copy of Your Tax Return Information?

Requesting transcripts (individuals):

You have three easy and convenient options for getting copies of your federal tax return information--tax return transcripts and tax accounttranscripts--by phone, by mail, or online.

Our new online ordering method, Order A Transcript, is available and makes ordering simple.

You may also request transcripts by calling 1-800-908-9946, or order by mail using IRS Form 4506T (Request for Transcript of Tax Return).

We do not charge a fee for transcripts. Allow five to ten days for delivery if you order online or by phone.

Definitions:

A tax return transcript shows most line items from your tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions such as those offering mortgages and for applying for student loans.

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.

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