Reasons For Being Audited By The Irs – Whether you own a large or small business or are an individual taxpayer, no one is safe from an IRS audit notice. In fiscal year 2019, the IRS audited 771,095 tax returns, resulting in nearly $17.3 billion in additional taxes.
Although many people believe that wealthy individuals are more likely to be audited, this is not always the case. In fact, 256,708 tax returns were audited in 2019 for individuals claiming the Earned Income Tax Credit, a benefit for low-income individuals.
Reasons For Being Audited By The Irs
If your tax return is audited by the IRS, the IRS is more likely to find errors on your tax return, which could result in IRS audit penalties and interest. In more serious cases, fines can cost you thousands of dollars or even jail time.
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IRS audit penalties are fees or criminal consequences imposed on taxpayers who make errors on their tax returns or fail to pay taxes by not filing a return.
Most IRS audit penalties are related to errors in tax returns. Remember, the IRS can impose more than 150 different penalties. So, when the IRS audits your tax return, you could end up with a big tax bill.
In some cases, the IRS randomly selects taxpayers for audit based on statistical formulas to verify inventory and financial data. With random audits, the IRS compares your tax return to previous years to determine if there are any errors before conducting an audit.
The IRS will notify you by mail or in person if your business is eligible for an audit. All initial contact will be made by mail and the letter you receive will include all necessary details such as contact information and filing instructions.
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If the audit is conducted through an in-person interview, it may be conducted at an IRS office, your business, or your accountant’s office. For an audit by mail, the letter asks you to provide more information about specific items on your tax return. If your record is too long
Your business may request an in-person review using email, letter notices and contact information.
There is no specific timetable for the review process and your review will begin as soon as your business receives the first email notification.
The timeline depends largely on how your records are organized, the accuracy of the records, the type of audit, your and the auditor’s availability, and how you respond to the audit.
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For example, just because you disagree with the results of a review does not mean your review is over. Once the review is complete, you will be in contact with the reviewer as you can file an appeal to extend the process.
An easy way to prevent a company audit from taking too long is to make sure your business records and financial statements are in order. By keeping your files organized, you can avoid the risk of an audit.
The statute of limitations for IRS audits dictates how far back in past tax returns the IRS can go to conduct an audit. The length of the review depends on the complexity of the particular review and the number of errors present.
In most cases, the IRS will review the previous three years of small business tax returns. However, the IRS may review returns older than six years if there are material errors. However, most of the audits are for returns from the last two years.
Reasons The Irs Will Audit (infographic)
Legally, you must keep all tax return records for at least three years after filing. It’s also a good idea to keep these records for longer so you’re better prepared if an auditor needs a previous tax return.
The Internal Revenue Service (IRS) will provide a written request for specific documents required in the letter you receive. Some of the documents the IRS may request include:
Applies if you file your tax return late or if you don’t pay your tax on time. The interest depends on the amount of tax you owe and when you deduct it.
Additionally, the IRS may charge you a minimum late fee if you file your tax return 60 days or more after the return due date (including extended tax return due dates).
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File your 2020 tax return for the amount of $435 or pay the full amount, whichever is less. If you file late if the IRS owes you a refund, you won’t be charged a late filing fee. However, you must pay your taxes to receive the refund.
There was an error on your tax return. If the amount listed on your return is significantly different from the amount you owe, you may owe a civil penalty of 20% of the underpayment.
Relating to penalties for fraudulently underpaid taxes. Whether you underpay the tax you owe or evade the tax altogether, you will be charged a monthly penalty of 5-25% of the unpaid tax.
If civil fraud is committed, you can be fined up to 75% of the underpayment added to your past due tax bill.
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21 days after check you will have to pay late fee. If you do not, you will be charged an additional penalty of 0.5% per month for each month you are late.
The statute of limitations for fraud, tax evasion and other criminal charges is six years. However, the statute of limitations does not apply to all civil charges.
If you are facing a penalty as a result of an audit and want to challenge the decision, you must file a request for review. However, this is best done with a tax professional.
The IRS will only review your audit in limited circumstances. Penalties and interest will continue to accrue while the IRS reviews your audit.
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If your audit review is denied by the IRS, alternative remedies may be arranged, such as compromise or penalty relief.
An offer in compromise allows you to pay only a fraction of the amount owed. However, the IRS accepts part of the offer in compromise presented to them.
You can also apply for penalty relief, and the IRS can waive some or all of your tax penalties. In order for the IRS to grant you a reduced penalty, there must be probable cause or several other eligibility criteria must be met.
Facing an IRS tax audit can be scary, and it can be even scarier when you’re dealing with the IRS alone. If the IRS imposes a penalty on your tax return after a tax audit, call a tax professional.
How To Survive A Tax Audit
Tax attorneys have experience handling complex tax matters and have the skills and knowledge to negotiate with the IRS on your behalf. They can help improve your chances of getting a compromise settlement offer, penalty relief, or entering into a refund agreement with the IRS.
If you believe you were treated unfairly or the IRS made a mistake during an audit, a tax attorney will thoroughly investigate your situation and guide you through the process so you can provide the correct documentation to the IRS and avoid harmful mistakes.
With over 100 tax professionals from all areas of the tax industry, Polston Tax can provide the comprehensive tax support you need. Rest assured, our team is fully capable of protecting you and your assets and reaching a resolution that works in your favor.
Taking responsibility for taxes should never be an option. You should have peace of mind knowing your taxes are taken care of.
Irs Audit Triggers: Operating A Cash Business & More
Being reviewed? Here are some things to keep in mind The Internal Revenue Service (IRS) conducts an audit to verify the income and expenses reported on your tax return. In 2020, the IRS audited 509,917 tax returns and recommended $12.9 billion in additional taxes. Although your chances of getting audited are slim, it is still possible to get caught by the IRS. Sometimes you may be audited because you have a complex… Read More How Far Back Can the IRS Audit a Person? Many Americans are concerned about an IRS audit of their income tax returns. Of course, filing your tax return on time doesn’t mean you’re immune from an IRS audit or IRS lawsuit. In fact, the IRS will be examining your tax return long after you file it. While it’s important to get your tax return before… Read More How to Avoid an Audit Tax season can be stressful and overwhelming for everyone. Apart from filling the form, collect your receipts from the previous year and make sure you are doing everything correctly
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