An IRS audit is basically a formal review/examination of a person or company’s accounts and personal information in order to check that the reported financial data as well as information related to the tax owed is correct and reported accurately according to the tax codes. Most of us are aware of a tax audit, but have no idea what it is or how it actually works. The Internal Revenue Service (IRS) is responsible for the tax collection and payment of U.S. taxpayers. This includes verifying that proper tax payments have been made and that tax debt is actually paid.
As tax collections have increased over time, the IRS has had increased numbers of auditors. In response to this increase in auditors, the IRS started publishing tax audit notice publications describing the types of audits generally assigned to that year as well as the main reasons for the audit. Currently, the IRS has eleven different types of audits. Most audits are in-person. However, there are also two types of “in-house” audits that are not in-person.
“In-house” means that the tax analyst does not personally examine the tax return or other documentation provided by a taxpayer. In most cases, the tax analyst is someone who is not a tax lawyer or tax advisor and is acting as an administrative agent. When a “In-house” audit occurs, the taxpayer is usually given a notice of the audit and a specific date of that audit is given. Then a tax resolution process begins. The purpose of this process is to try to determine if additional tax liability has been created by the original tax return. A tax resolution specialist can look at the tax return to make sure the tax listed was filed correctly, there were no errors, and the tax owed is clearly owed.
“In-house” audits are also sometimes called an “initiated audit.” The IRS will begin an “initiated” audit on a taxpayer when a notice of audit has been received from one or more field offices. In some situations, the tax representative will personally visit the home. In other cases, the tax representative will send a certified mail letter requesting documentation on the tax return and asking for a response within a specific amount of time. If the taxpayer fails to provide the requested documentation within the specified time period, then a letter of default may be sent to the taxpayer by the tax representative indicating that additional tax investigation is warranted.
“In-house” audits may also be done on taxpayers who fail to report all tax year income on tax returns. In this case, the taxpayer’s tax return is examined to determine if additional tax liability has been created. The tax inspector may look for any discrepancies in the tax return, as well as look to see if the taxpayer reported all tax deductions and credits on his/her financial statement. If tax liability is determined, the additional tax is collected from the tax payer.
In conclusion, it is important for taxpayers to understand what types of IRS audits are going to occur. Some taxpayers are represented by tax professionals while others are represented by the IRS itself, said the best tax lawyer in New Jersey. It is always a good idea to have a tax professional represent you before you go into an audit meeting. With that being said, do not hesitate to contact your tax professional if you believe you may need additional tax advice or assistance.