Receiving a letter from the IRS can be scary. Receiving a letter from the IRS that says that your tax return has been selected from audit can be even scarier. It shouldn’t be.
The IRS audit process is merely a means for the government to determine that taxpayers have reported and paid tax as they should have. Taxpayers who have filed their tax returns and made some tax payments usually have nothing to fear from an IRS audit.
Even taxpayers who took some liberties in completing their tax returns have little to fear. In these cases the taxpayer may be surprised to find that the IRS auditor does not notice the issue or, if the issue is spotted, the final tax bill for the adjustment does not turn out to be that large.
So what can taxpayers expect from an IRS audit? Here is a short list:
A Friendly IRS Auditor
Taxpayers can expect a courteous and possibly even friendly IRS tax auditor. Yes, that’s right. The IRS has learned that a friendlier IRS tax auditor loosens taxpayer lips and, as a result, taxpayer wallets. Taxpayers should expect a friendly tax examiner.
Providing Records to the IRS
Taxpayers can expect to have to produce records. Yes, that’s the “R” word. Usually the IRS auditor will provide the taxpayer with a specific list of items to bring to the examination. This list is usually overbroad. The IRS auditor will have a few issues that they “must” audit because the issue has been identified by the IRS computer matching program and the auditor will also have a few “I want to audit” issues. “Must” issues require significant documentation. “I want to audit” issues often require less documentation. Taxpayers should expect to provide this documentation to the IRS during the audit process.
Tax Audit Adjustments
Taxpayers can expect to have a few minor tax adjustments. A tax adjustment is where the IRS makes a change to the tax as reported by the taxpayer either because the taxpayer could not provide sufficient records (yes, that’s the “R” word again) to support a particular item or the taxpayer claimed something (intentionally or unintentionally) that he or she should not have. The tax adjustment will almost always result in some amount of additional tax being owed.
A Quick Audit and a Long Wait
The average IRS audit usually only takes a couple of hours. The average time the hear back from the IRS auditor is usually thirty to sixty days. IRS auditors will often send a report to the taxpayer asking him or her to agree to any proposed adjustments. If the taxpayer does not agree, then the taxpayer has the right to dispute the IRS auditor’s decision and to appeal the IRS finding to the IRS Appeals Office.