I am sure you are aware that the Internal Revenue Service audits tax returns. This is just to make sure we are telling the truth on our returns. The IRS uses these audits to collect data on how honest the public is in filing its tax returns. If there are not huge sums of income missing or large deductions claimed that cannot be proven, then the IRS considers that it is doing its job, and no big changes need be made in IRS procedures. If, however, it finds large amounts of taxes it is not collecting because of the inaccuracies of the tax returns, it may decide to audit more and more returns to secure compliance by the taxpaying public
The number of audits conducted by the IRS is increasing in recent years. For example in the fiscal year of 2004, ended Sept. 30, the total audits of individuals topped 1 million, an increase of nearly 19 percent over 2003.
If you receive a letter from the IRS requesting additional information about your tax return, this does not mean you are being audited. It could mean that there is just a simple question about your tax return, so that it may be processed and filed away. Or it could mean that the IRS wants substantiation of information contained on your tax return.
The majority of audits are correspondence audits and do not require you to visit the IRS office. When a possible error is found, a letter is generated by the IRS and sent to the taxpayer explaining what was uncovered, the proposed correction, a detail of any new tax owed, interest and penalties, and how and when to respond.
If You're Called In
If the IRS requests an office visit audit, do not ignore the notice. Follow the instructions on the audit letter regarding setting up, or confirmation of, the date, time, and place of your appointment. If you are unable to keep the appointment, notify the auditor and set up a new appointment.
If you used a tax professional, contact him or her as soon as possible and explain the situation. Many tax professionals will accompany you to the IRS office visit. Though they cannot act as your legal representative, they can explain how your tax return was prepared.
You have the choice of taking a representative with you or sending the representative alone. Consider the choice carefully. If you think you might panic, or lose your temper, or do anything to hurt your own case, let the representative go alone.
Research all relevant data covering the area being audited. Locate receipts, checks, and any other pertinent records. Your tax professional may have all necessary records. Run a calculator tape comparing totals to amounts shown on your tax return.
Be organized. Only take those documents that the IRS has requested, plus any necessary supporting documents, to the audit.
You will be given a copy of Publication 1, Your Rights As a Taxpayer. You must read this publication so that you will understand the audit process, your rights, and how to proceed if the audit does not go your way. It is a short publication, so it won't take too long to read, and it is informative.
At the audit, answer the auditor's questions completely with the shortest possible response. Stick to the facts. Do not volunteer information or answer a question that has not been asked. Stay calm. The auditor is just doing his or her job.
After the audit is completed, you may agree, partially agree, or disagree with the auditor's findings. You may request a supervisory conference or appeal the results of the audit.
All this information is contained in Publication 1.
Patrick Connoly is a tax advisor with H&R Block. For more information, visit www.hrblock .com, or telephone (323) 851-1040.