How does the IRS select people for audits?
First and foremost, one should understand how the IRS selects people for an IRS audit. Of course, there are specific algorithms the IRS has acknowledged to use to find tax frauds, but generally, there are standard practices for selecting an IRS audit.
Faris Katib, the CEO of Ideal Tax states “No one likes paying taxes, but it’s an unfortunate reality of life. And while it’s tempting for people to try to cheat the system, doing so is a risky proposition.”
The selection of an audit does not necessarily imply the existence of a problem. Apart from algorithms, the IRS employs a variety of strategies.
Random selection and computer screening
The IRS evaluates every tax return to “standards” for similar returns. As part of the IRS’s National Research Program, they create these “norms” by auditing a statistically relevant random sample of returns. The IRS uses this application for specific return selection information.
The IRS may pick your returns if they contain issues with other taxpayers, such as business associates or investors, whose returns have been selected for audit.
Following that, the return is reviewed by an expert auditor. They may confirm it, or if the auditor finds something dubious, they will identify the items and transmit the report for assignment to an inspection group.
It is important to note that filing an amended return does not affect the original return’s selection process. However, revised returns are subject to a screening procedure, and taxpayers may choose the corrected return for audit. Furthermore, a refund does not always result in an audit.
Different types of tax audits
The most prominent possibility is that you will get mail. Correspondence is typically used to find solutions to everyday issues like those involving math or the absence of necessary documentation.
The most comprehensive type of audit is called a field audit. A local IRS office is going to conduct a planned office inspection. First, they will check to see if you have disclosed all of your income and that the deductions you claimed are appropriate. Following, an IRS agent will come to your residence, place of business, or your accountant’s office to verify the facts on your tax return by inspecting the papers and files there. However, these audits rarely occur.
Tax audits myths
One common misconception about tax audits is that they are only on wealthy individuals. Another common misconception is that professional tax filers are exempt from audits. To clarify more, the Internal Revenue Service (IRS) conducts its business analogous to companies that employ randomized choices and relies on statistical data to choose individuals for audits. Some results are selected randomly, while others are chosen because they deviate significantly from the average.
The fictional nature of tax audits is attributable primarily to the entertainment industry, namely television and film. Many people experience intense levels of anxiety whenever they hear the term “audit.” They are not quite as exciting as what you see on the big screen. The process is far more clinical.
Indeed, the higher your income, the greater the likelihood that your taxes will be audited, but the difference is so tiny that it is statistically inconsequential. In 2017, the Internal Revenue Service (IRS) audited fewer than 1% of tax returns submitted by filers with annual incomes of less than $500,000. 71% of those with incomes less than $25,000 submitted tax returns.
Should I Get the Help of an Expert?
It is up to you to decide whether or not you want to hire a professional to represent you, according to the opinions of those in the field. However, many individuals believe it is a good idea to invest in everything but simple audits. Therefore, if you engage a tax expert, your best bet is to seek registered agents, licensed public accountants, or lawyers that focus their practice on audit representation. In addition, as a type of insurance policy, if you are audited, many tax firms, also known as tax experts, will charge you a fee for audit defense.
Always remember that you have rights throughout an audit by the IRS; if you need assistance or have any questions about tax relief such as the IRS forgiveness program, the tax professionals at Ideal tax can support you. Along with the notice of initial contact, you ought to receive a written document outlining your rights. These rights include the right to representation and the right to be treated professionally by the auditor from the IRS. If you feel that a decision made by the Internal Revenue Service was incorrect, you can appeal the decision to either the IRS or the courts.