It's the envelope no taxpayer wants to open: an IRS audit notice. What should you do if one arrives?
Those low-level inquiries account for 80% of audits. But you should take the notice seriously. If you receive an audit notice, you should respond promptly. For simple issues like missing or incorrectly reported items, provide only the information requested and nothing more. For all other issues, consider contacting a tax advisor, such as a certified public accountant, or CPA, who's familiar with your specific situation. You may also want to seek the advice of a tax attorney.
The next level is an audit. This is where an agent looks at a specific return and questions certain items. Audits tend to focus on taxpayers with higher incomes. There are several triggers, including:
- Travel and entertainment expenses.
- Home office expenses.
- High donation amounts.
While the IRS conducts some random audits to check the accuracy of statistics and returns, it tends to select returns based on the opportunity to collect money.
Generally, audits include returns filed within the past three years. They may audit additional years if a substantial error is identified. This is typically an error of more than 25% of your gross income. The IRS usually won't go back more than six years unless fraud, or other issues, are involved.
We recommend getting help and representation from a tax professional such as a CPA, or qualified tax attorney, if you have additional questions about the audit process or audits by mail. They can help you understand your rights and make sure the IRS stays within the scope of the audit.
If you think a case was mishandled or the facts don't support it, you can contact the IRS Taxpayer Advocate ServiceOpens in a New Window. See note 1