The Run Down: This Weeks Radio Topic: Tax Trouble: 5 ways to survive an audit
The chances of getting audited by the IRS are less than 1%, but if you find yourself in hot water with the agency the burden is on you to prove the legitimacy of your deductions and credits and verify you reported all sources of income.
“The IRS is so stretched with resources that they are shifting to issuing more correspondences than actual audits,” says Brooke Balducci, senior manager at accounting and business management firm CBIZ MHM.
When it comes to avoiding trouble with Uncle Sam, the best offense is a good defense. “Unfortunately, the IRS doesn’t tell us exactly what they are doing or looking for. You should fill out your tax return with the plan of being audited and don’t claim anything you don’t have the documentation to prove,” she advises.
The length of an audit varies, according to Laurie Zeigler, an enrolled agent and director of the National Association of Enrolled Agents. “There isn’t a typical audit process. They usually take a couple of months, but I’ve seen them dragged out for over a year.”
She adds that any audit notices coming this year aren’t going to be for the 2013 tax year. “Right now, they are auditing 2011 returns, so if people thought they were safe from past returns they’re wrong. And if the IRS finds anything in your returns from the past three years they can then go back another three years.”
Your chances of getting audited are slim, but here’s what you need to know to survive the process:
Read the Letter. Twice. While the IRS has taken steps to make their letters less confusing, anything regarding the tax code tends to make people nervous, so it’s important to read the letter carefully and understand what the agency wants.
According to Zeigler, of the 1% of people who get audited, three-quarters of them are facing a correspondence audit.
“An audit correspondence is done entirely through the mail. The IRS will request documents proving some of the deductions or credits you claimed-especially if they are higher than average,” she says.
Address the Issue. Filers tend to have 30 days to respond to an IRS inquiry and Balducci says just because the agency wants more information doesn’t mean you will owe additional taxes.
“In most cases they just want more information. People tend to panic and think they are going to have a big tax liability and tend to ignore the letter, and that’s not a good idea.”
Talk to any expert on IRS audits to localize.
“I’ve been doing this for 30 years and I can honestly say you’re more likely to be audited this year than ever before,” warns Joe Mastriano, a Houston-based CPA who specializes in IRS issues.
Joe Mastriano is a client who can talk about the red flags that will almost always trigger an IRS audit. Feel free to contact Joe directly:
Joe Mastriano, CPA
CPA and IRS Problem specialist
Joe is also available for Skype interviews.