IRS Tax Audits - How can I avoid them?

by M.E. Hansen, All rights reserved. Do not duplicate without permission

More than You want to Know about Audit Procedure.

    There's no reason to be troubled by the prospect of an audit if you know your rights and know the steps to guide the audit to a satisfactory conclusion.

KINDS OF AUDITS

The audit process begins when you receive a notice from the IRS informing you that your tax return has been selected for an audit. There are two kinds of personal audits;

Correspondence audits are the simplest. In most cases, they involve only one or a few Items and can be handled completely by mail.

Examples: The IRS asks you to send a copy of the receipt you obtained from a charity for a charitable contribution, or a copy of a brokerage account statement that verifies a capital gain or loss you reported on your return.

Office audits are what most people think of when they imagine "being audited." You are asked to come to the IRS auditor's office to answer questions about your return and to bring any records needed to document it.

FIRST STEPS

No matter what kind of audit you face, the audit notice should be accompanied by a copy of IRS Publication No. 1, Your Rights as a Taxpayer, which explains the audit and audit appeal processes. Read it carefully. You can also receive a free copy of Publication 1 by calling the IRS (800TAX-FORM).

Examine the audit notice carefully. Do not assume that the information on it is correct, the IRS has been known to make mistakes.

Things to check:

Has the notice been sent to the correct person? A divorce may result in an audit notice being sent to the wrong spouse, or the notice may be for someone else with your name.

Has the statute of limitations expired? In most cases the IRS must begin an audit within three years of...

...the due date of your return for the year being examined, or

...the Date on which you actually mailed your return for the year or

...whichever is later.

Is the information on the audit notice correct? Sometimes returns are flagged for an audit due to simple errors that are easily corrected, such as matching errors between amounts reported on 1098s and amounts shown on the return.

By quickly correcting such errors, you may speedily resolve the audit and keep it from spreading into other areas.

Have you been audited for the same reason within the last two years? If so, and if the prior audit resulted in no change on your return, inform the IRS and it probably will cancel the new audit. It is IRS policy to avoid repetitive audits unless there is a particular reason for the second examination.

Next Tax Audit Page: IRS Tax Audit Procedure (cont'd)