For Mark Roberts’ Use: It’s a scenario made for dark comedy films and financial nightmares: That envelope arrives in the mail from the IRS, and you discover the news that your tax return is being audited. If this is a worry that plagues you, try to remain calm as you file your taxes this April. Audits are rare, occurring in about one to 3.5 percent of all tax returns* when the taxpayer earns less than $1 million per year. Even when the IRS does audit, it’s usually not the frightening experience you probably imagine. In a some lucky cases people even end up with a larger refund!
Don’t panic!
The IRS chooses a few thousand returns at random each year, and performs an audit. This is a quality control measure, and frankly the threat of random audit is meant to discourage any sneaky business. So if you receive that notice in the mail, be reassured that you may not have done anything at all suspicious. In other cases the IRS simply wants to verify your eligibility for certain deductions or credits you may have claimed.
The IRS recognizes that many tax return errors are simple mistakes on calculation, or writing a number on the wrong line of a form. An audit is not an accusation of a crime; in the vast majority of cases there aren’t going to be any serious long-term consequences! Often – about 7 times out of 10 – audits are conducted through the mail. So you probably won’t even have to talk to someone in person. Often, your entire return won’t even be audited; it’s common for the IRS to ask for proof of only two or three items.
The best defense is a good offense.
The best defense against audits is to carefully prepare your return, seeking the advice of a professional when necessary, and to save your records. For example, if you claim charitable deductions you should have some proof of those payments. If you’re self-employed, report all income. If you report business or casualty losses, be ready to prove them. If you receive help preparing your taxes, notify this person or business immediately if you receive notice of an audit. In many cases, you paid for help with potential audits when you paid a fee for your tax filing service.
In the worst case scenario, you may be notified that you owe more money to the IRS. At this point you have the right to appeal the decision, cut a deal to pay a lesser amount, or set up a payment schedule. Whatever you choose to do, set aside your fears. Audits are a hassle and can be a bit of a paper chase, but in nearly all cases do not result in devastating consequences.
*http://www.irs.gov/pub/irs-soi/12databk.pdf
