Federal Audits
Federal audits can be summoned as far back as three years from the date you filed your last tax return. There are a number of reasons why you may be chosen for an audit and the most common way a person is flagged for an audit is through a computer analysis. The IRS has a computer system to check for taxpayers risk and which returns need more information. If you are chosen through this method you are being audited as there might be a significant change in your tax returns from years prior. You would need to submit and gather information and documents to secure that your returns are accurate and the reasons why their was a change from the previous years. Another method in which people are picked to be audited is through random selection, this maybe unfortunate for the person who is being audited but only a small percentage of tax returns are selected this way. While the IRS will also look into returns that show expenses are disproportionate to your income. In most case an audit is preformed to validate your tax returns and that all documents they request support your returns.
There are few things to keep in mind when being audited and by following these guidelines you can make your auditing process less stressful. First step is to get all your documents in order that the IRS request. Once you have this you can work with the auditor and start the auditing process or if you have an accountant or tax specialist who worked on your returns then you might want to have them involved in the audit. Give information to the IRS as they request for it, provide additional information if the auditor inquire for other documents. Being cordial to the IRS would be the best way to get through the audit as you do not want to be hostile or misbehave as it will make the audit more difficult to go through. As long as you are calm and provided the requested information the audit should go without fault and be sure to keep your patience.
At the end of the audit there are a few way on what is decided, you can be clear of your audit meaning your returns are correct and supported by the documents they requested or owe additional taxes. If you feel that the decision to pay additional federal taxes is not correct you can appeal but you must be prepared to have another lengthy process. Agreeing to the additional taxes owed means you will want to have it paid as soon as possible or work out a payment plan. Not paying owed taxes is something to avoid doing as you do not want to have the IRS put penalties and interest which would disrupt your recovery further. In all a federal tax audit should not be as nerve-wracking as many people think it to be as long as you proceed with the audit properly. Being better prepared with your documents and files should keep you ahead of the IRS and should you be audited there should be no major concerns.