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I'm being audited by the IRS-Now what?

By: Dorothy Griggs, EA

How does the IRS decide who gets audited? The IRS uses a recently updated formula and scoring system to evaluate tax returns. If something seems out of whack- -like low income accompanied by extremely generous charitable contributions--the return is flagged for a more in-depth look. Simple math errors do not warrant audits. What does warrant an audit are things like taxpayers forgetting to report a source of income or getting paid as independent contractors and forgetting to pay your Social Security tax.
There are two basic types of audits. The most common are by correspondence. The IRS may request further documentation by mail. You should send copies only and always keep original records in your files for at least three years, the amount of time the IRS can go back and audit a return. Keep in mind, the IRS may go back indefinitely if they suspect fraud.

The second type of audit is face-to-face. These occur when the amount of documentation requested by the IRS might be too large to handle by mail. In these cases the taxpayer must visit a local IRS office on a specific date.

AUDIT ADVICE--1) Act promptly. The longer you wait to respond to an audit the more you can pay in interest and fines. 2) If you have a conflict with the date or need more time to get records in order, call and reschedule the meeting. 3) Be friendly when dealing with IRS agents. They might have leeway when it comes to accepting partial records and documentation. Being cordial can't hurt. 4) Be honest. On the other hand, don't volunteer any information that isn't asked for. 5) Carefully choose your tax preparer. Be sure he or she would be able to help you with an audit. And remember, if you sign a return you are taking responsiblity for that return. Blaming your accountant or brother-in-law won't help during the audit.

Dorothy J. Griggs is a licensed Enrolled Agent and has over 10 years of tax and accounting experience. Enrolled Agents are tax professionals licensed by the federal government to represent taxpayers and assist them with tax planning and tax return preparation. Dorothy is also a member of the National Association of Enrolled Agents. For more great tax tips, visit her website at http://www.avirtualaccoutant.com


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