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Accounting Information > Income Taxes > Being Audited by the IRS

Being Audited by the IRS

             The thought of being audited by the IRS is a scary thought for most of us.  Even if we are sure we did our return correctly, and did not leave out any income, or over-inflate our deductions, just the thought of going through an audit is very stressful.  Fortunately, the chances of your return being audited are usually quite slim.  The likelihood of being audited varies based on your income, profession, type of return, where you live, and the types of transactions you report. 

             The possibility that your return will be audited increases if the information on your return differs from information received by the Internal Revenue Service from third parties, such as Form W-2 or Form 1099.  Your odds of being audited also go up if your itemized deductions are above IRS specified amounts, you claim tax-shelter losses, business expenses seem out of line with business income, cash charitable contributions are high in relation to income, you happen to be a shareholder of a closely held corporation whose return has been examined, a previous audit resulted in a tax deficiency, you are paid cash in your work that the IRS considers easy to hide, or an informant provides information to the IRS that leads them to believe you may not be reporting all income on your income tax return. 


             If you are selected for an audit, you will be notified by the IRS.  There are various types of audits.  In some cases, everything will be handled by correspondence.  The IRS will send you a letter asking for clarification or documentation for specific items on your return.  You can send the information back by mail.  If the IRS determines that you owe additional taxes, they will certainly notify you by mail.

             When the examination or audit is conducted at a local IRS office, that is referred to as a desk or office examination.  Most individual return audits are handled at local IRS offices.  Normally, it would be at the IRS office closest to your home.

             A field examination is normally done for a business return audit.  This means that the IRS agent handling the audit would come to your place of business. 

             As soon as you are notified that your return is being audited, you should review your return, and gather any supporting documentation that has been requested, or that would support the reported information on your return.  You may choose to have someone represent you before the IRS.  This person could be an attorney, a CPA, or an enrolled agent.  If you have completed Form 2848, your representative can go to the audit without you. 

             Once the audit has been completed, the Internal Revenue Service will determine if you are liable for any additional taxes, as well as interest and penalties.  If any fraud is discovered, a 75% penalty will be applied to the whole underpayment amount.

             If you are looking for a CPA or Accounting Firm to assist you with your income tax reporting, bookkeeping, financial planning, or general accounting needs, then you have come to the right place!  Use the CPA Search feature on this website to find a qualified professional in your area to meet your needs.


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