Tax Audits and Appeals

Dealing with Tax Audits and Appeals: A Helpful Guide

Getting audited by the IRS can be a scary and stressful experience. But it doesn’t have to be! This article will walk you through what to expect during a tax audit, your rights and options if you disagree with the results, and how to effectively appeal an audit finding.

What Triggers a Tax Audit?

First things first – why are you getting audited in the first place? There’s usually a reason the IRS flags a return. Common triggers include:

• Math errors on your return
• Large, unusual deductions or business losses
• Unreported income
• Suspicious activity like frequent large cash deposits

The IRS uses computers and algorithms to look for returns that seem fishy. But a tax audit doesn’t necessarily mean you did something wrong! Sometimes they just want to take a closer look and verify some information.

Types of Tax Audits

There are a few different kinds of IRS audits:

Mail Audits

A mail audit is when the IRS sends you a letter asking for more documentation on certain parts of your return. This is the most common type of audit. The letter will specify exactly what additional info they need from you.

In-Person Audits

For more complex audits, an IRS agent may request an in-person interview. This can take place at an IRS office or even your home or business. The agent will go through your return line-by-line and ask for documentation to support your numbers.

Field Audits

Field audits are done by experienced IRS agents and are very thorough. They involve both an office interview and a site visit to your business or rental property. You’ll need to provide extensive records and documentation.

What to Do During an Audit

If you get that dreaded audit letter, stay calm! Here are some tips:

• Read the letter carefully to see what specific info the IRS needs.
• Gather all relevant documentation like receipts, invoices, bank statements, etc.
• Make copies of everything, including your original return.
• Respond to all requests in a timely manner.
• Consider hiring a tax pro to represent you.
• Be cooperative but don’t volunteer extra information.
• Take good notes during in-person interviews.

Having an experienced tax professional in your corner can really help during an audit. They know the IRS procedures and can communicate with the agent directly on your behalf.

Dealing with Audit Results

After reviewing your documentation, the IRS will either accept your return as filed or propose adjustments. If no changes are needed, congratulations! Audit closed.

If they do propose adjustments, you’ll receive a report explaining their findings. At this point, you have a few options:

• Agree – If you agree with the changes, sign the report and pay any additional tax owed.
• Disagree – You have the right to appeal audit results you don’t agree with.

Appealing an Audit

The IRS understands that taxpayers often disagree with audit findings. That’s why they have an appeals process in place. Here are the steps:

1. Within 30 days of receiving the audit report, file an official protest. Explain what you disagree with and why.
2. Request a hearing with the IRS Office of Appeals. Bring documentation supporting your position.
3. The appeals officer will review your case. Explain your position clearly.
4. A settlement may be reached, or the appeals officer will make a determination.
5. If you still disagree, you can file a petition with the U.S. Tax Court.

Some tips for a successful appeal:

• Organize your records and make copies for the appeals officer.
• Highlight where the original auditor made errors or oversights.
• Research tax laws supporting your position.
• Propose alternatives like penalty abatement.
• Consider hiring a tax attorney or CPA for representation.

Appeals are often successful – around 40% of proposed taxes and penalties get reduced or eliminated, per IRS data. It’s worth appealing an unfair audit finding!