Understanding IRS Audits
  • Some Background

    First, a little history lesson. In 1998, the IRS Reform and Restructuring Act was passed, ordering the IRS to concentrate more on taxpayer rights instead of collection activities. As a outcome, about one out each 79 tax returns were audited that year. This dramatic decrease continued, and by 2003, according to IRS data, only one of every 150 person taxpayers were audited.

    I am afraid this good trend did not continue although. The IRS soon returned to their wicked ways and by 2005, the number of audits hit it's highest since 1998. The 2006 tax year saw 1.28 million individuals audited.

    One big purpose this happened is because taxpayers, mainly these that skew their numbers purposely, became as well bold. More and more tax errors had been becoming made and the IRS decided to step up collections once more. So the exact same lawmakers who once demanded the IRS give taxpayers the advantage of the doubt started applauding the new aggressive method. Members of Congress are hoping that enhanced enforcement efforts will assist close the $345 billion tax gap. According to 2001 figures, that amount represents the difference in between what taxpayers should have paid and what they really paid. So, without some assist from extra IRS collections, Congress would have to consider raising taxes.

    But do not let worry of a possible audit discourage you from filing for credits or taking reputable deductions. Even although some actions taken on your tax return are most likely to raise a red flag, that doesn't necessarily mean you will be audited. Even if your return is questioned, it's not absolute that you'll end up owing the IRS. As lengthy as your deductions and costs are reputable and you have documentation, you will have nothing to worry about.

    Types of Audits

    But still, if you have discovered your self in the cross-hairs of the IRS, it's essential to know what you are up against. Read beneath to learn about the various sorts of audits and what type of trouble you're in.

    Correspondence Audit: The correspondence audit is the simplest type of IRS audit. Throughout this audit, the IRS sends the taxpayer (by way of mail) a request for proof of a particular deduction or exemption taken by either finishing a special form or sending photocopies of relevant financial records. On a good note, the tax payer has the greatest chance of winning a correspondence audit.

    IRS Workplace Audit: An IRS office audit is carried out in an IRS workplace and is mainly about easy tax matters.

    Field Audit: Field audits are generally the most complete IRS audits and are performed by skilled IRS officers. I am afraid to say that a field audit usually results in additional tax bills for the tax payer.

    IRS Repetitive Audit: An IRS repetitive audit is an IRS audit conducted on the same tax payer over and over. If no extra tax bills outcomes from an audit and the IRS wants to audit the same tax payer again, the tax payer can ask the IRS to discontinue the IRS audit on the ground of IRS repetitive audit.

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