Are you prepared for an Audit? Using the IRS as a guide, a tax audit is defined as
a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.
Reasons You Might Get Audited
Contrary to popular belief, many taxpayers think that being audited is an indication that there was some sort of user-error made when filing their taxes. However, being audited does not necessary indicate that this is the case. In fact, you can be audited for any of the following reasons:
- Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
- Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
- Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
How You’ll Be Notified
Those who are audited are notified in one of two ways: by phone or by mail.
What You’ll Need
The IRS representative will let you know what documents are needed in order to complete the audit.
According to the law, small business owners, individual taxpayers and other corporations are required to retain records used for the purposes of preparing tax returns. As a general rule, you should aim to hold onto tax records for a minimum of 3 years from the date that the tax return was initially filed. An accountant or reputable tax service can also provide and offer assistance in tax audit matters.
If you have questions about tax audits or the process of being audited, make sure you ask your CPA or check out the IRS website for their informative video series titled Your Guide to an IRS Audit. You can always ask us too. We’re happy to help.