Tax FAQs:

FAQs Relating to Audits

Q. What is the Taxpayer Bill of Rights?

  1. Often referred to as the Taxpayer Bill of Rights, IRS publication 1, Your Rights as a Taxpayer, explains how the IRS must conduct an audit and explains the rights of the taxpayer whose return is being examined. Some of these rights include the following:
  • The right to record the interview.
  • The right to propose an installment payment program.
  • The right to appeal the findings of an audit.
  • The right to conduct the audit at a time and place that is convenient for you.
  • The right to limit the scope of the audit to those issues directly relevant to the items being examined.
  • The right to get the help of an IRS ombudsman or problem resolution officer to prevent the agency from seizing your property, garnishing your wages or forcing you into bankruptcy.

Q. What is the statute of limitations on the IRS auditing my return?

  1. Generally, the IRS can audit your income tax return within three years of the filing date for no specified reasons. However, if the IRS believes you have under reported your income by more than 25%, it has up to 6 years to impose an audit on you. There is no statute of limitations if you file a false return or do not file a return at all.

Q. How can I avoid an audit?

  1. There are no guaranteed methods to prevent audits, but you can reduce your chances. Make sure you completely fill out your tax return, check and recheck all calculations, and be sure to attach all required forms and documentation. The more information you provide them initially, the less likely they'll come looking for answers from you in the future.

Q. How do I prepare for an audit?

  1. First things first, look over the return in question and refamiliarize yourself with it. Examine the items the IRS questioned in its notice of an audit. Gather proof and documentation for items you are uncertain about. You need not attend your audit. An attorney, CPA or enrolled agent may represent you. If you do attend, do not bring any extra paperwork not immediately associated with the items to be questions by the IRS. If the IRS tries to pressure you into beginning an audit you are not ready for, reschedule the meeting for your convenience.

Q. Is there an appeals process for an audit?

  1. If you disagree with the findings of an IRS audit, you do have the right to appeal. The first appeal is to the examiner's supervisor. If you still disagree, the next step in the appeal process is the IRS Appeals Office. More information is available in IRS publication 1, Your Rights as a Taxpayer and publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.

Q. If I file an extension, am I less likely to be audited?

  1. No, it is commonly believed that returns filed after the April 17th deadline will somehow get lost in the crowd and have a less likely chance of being audited. However, this is not the case.

Q. Am I more likely to be audited because I have an
expensive car or house?

  1. No, the IRS cannot target you out for an audit just because you own property or drive an expensive car. However, if you are under an audit, the IRS may require an explanation of how you acquired these assets if your income does not match your lifestyle.

Q. Does the IRS pay a reward if I report someone who is guilty of evading
their taxes?

  1. Yes, but they are usually stingy with payments, stating that the leads supplied were not material. Reward amounts are within the IRS's discretion. They can be as high as 15% if your specified information is responsible for investigation, or as low as 1% if you merely supply a name. All names remain confidential. Use Form 211 to supply your information in writing.

Q. What is Tax Court?

  1. Tax court is used when all other appeals relating to an audit's findings have been exhausted and you still aren't satisfied with the outcome. If you and the IRS are arguing over an amount less than $10,000, it may be in your best interest to use small claims simplified procedures. About 50% of all small claims cases are won by the taxpayer!

Q. Does the IRS come to my home during an audit?

  1. There are three types of audits the IRS can hold. A field audit takes place at your home or office. An office audit takes place at an IRS office. A correspondence audit takes place via the mail.