Who does the IRS audit?
1. Taxpayers with Suspicious Activity
This can include taxpayers who have made mathematical errors on their returns, who claim an unusually high amount of charitable donations, who are self-employed and report too many losses or business expenses, who fail to include part of their income, or who round up a little too much and too cleanly. When filing a return, be exact with the numbers you have for your clients’ income, expenses, and losses to avoid suspicion.
2. Random Audits
These audits are not based on any suspicious activity or specific part of a tax return. Rather, they are randomly selected and thorough. The IRS looks through the entire return in these cases, often asking for receipt evidence for pieces and parts. Documentation is key for handling these audits.
What happens if they find something wrong?
If there is an error or omission in the return, the taxpayer will be notified of the discrepancy and any additional tax due. The taxpayer can at this point disagree with the assessment, but must schedule an interview or submit additional documentation to substantiate the claim, and it can be a long process.
What does an IRS Notice look like?
Any IRS notice will have an individual notice number to identify the correspondence. Below that, there will be a summary of the notice and brief instructions followed by a more thorough explanation section. Finally, the notice will explain how to respond to the notice, including how to indicate whether or not the taxpayer agrees with any IRS proposed changes or not.