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Dealing With An IRS Tax Audit

14th October 2010
By Jane M Dawson in Taxes
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If you have received a letter that your tax returns are being examined, do not panic. Every year, a small percentage of taxpayers are audited. Receiving a notice of an IRS audit does not mean that you have done something wrong or not paid your taxes. The IRS sometimes uses statistical tools to select a few taxpayers that have the highest probability of understating their taxes. And to make sure that those taxpayers have not claimed any deductions in excess or have not understated their incomes, audits are performed.

As soon as you receive the notice for the IRS audit, you should start preparing for it. This will make the entire process hassle-free for you. First you should check what kind of IRS audit you have to undergo. Basically, there are three types of IRS audits:

1. The Correspondence Audit
2. The Office Audit
3. The Field Audit

The first type of audit that is the correspondence audit is the least daunting for taxpayers. In this type of audit, the IRS will notify you about any discrepancy in your tax return through a letter. If you owe any taxes, you will be asked to pay them. If you receive such a letter, you should contact a tax attorney to find out if the calculations made by the IRS are correct or not. If you owe the taxes, you should pay them fast, but if not, then you can contest the matter. But remember that you have only 30 days from the date of receiving the letter to contest the case.

If you are called in for an office audit, then the IRS department will ask you to bring some documents that could be related to your sales, income, investments or bank transactions. This type of audit is usually conducted when there are a few issues in your tax returns and the IRS wants to fix them by checking your supporting documents.

The field audit is the most extensive audit. This audit is usually done by a revenue officer. The audit takes place at your home or business location. You will be informed about all the issues that the IRS has before the audit. You should carefully go through those issues and, if required, hire an attorney to understand them. There are a few points that you should religiously follow during the audit to avoid any problems:

1. If the auditor has already notified you about the documents that he or she would need, you should keep them handy. Do not show any documents unless asked.

2. You should answer to the point. Do not engage in unnecessary conversation and do not give information more than what is required as it can complicate the matter.

3. Do not discuss any tax issues except the one mentioned in the IRS audit notice.

4. The officer might ask you to take him/her around your home or office. This is a routine procedure done in order to take note of the office or home. Therefore, you should make the necessary arrangements beforehand.

5. Do not panic and never argue with the officer. Stay calm and quiet.

6. After taking the tour of your home/business and checking your documents, the officer will figure out if you have any outstanding tax to pay. If there is any, then he/she will ask you to sign the agreement regarding outstanding taxes. If you do not agree with the officer, you could decline to sign the agreement. In that case, you will have to file the dispute within the specified time.
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