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How Does a Tax Audit Work?

You get a letter in the mail from the IRS notifying you that your tax return is being audited. But you thought to yourself, “I e-filed my taxes and I’m pretty sure I did everything right.” So what gives?

What is a tax audit?

A tax audit is an examination of your tax return to ensure that you have reported your income and claimed deductions correctly. The IRS conducts audits to verify the accuracy of tax returns and to collect any unpaid taxes.

How does the IRS select which tax returns to audit?

The IRS has a variety of methods for selecting tax returns for audit, but the most common are:

  • Random selection: Tax returns are randomly selected for audits using a computerized system. This method is used for both individual and business tax returns.
  • Related examinations: You may be selected for an audit if your tax return is linked to another person or business that is being audited. This is often referred to as a “related examination.”
  • Compliance checks: The IRS may select your tax return for a compliance check if it appears that you have not followed the tax laws in the past.

What happens during a tax audit?

The first step in a tax audit is to notify you that your tax return has been selected for examination. The notification will include information on what type of audit will be conducted and what documentation you need to provide.

If you are being audited by mail, you will be asked to send certain documentation to the IRS. Once the IRS receives your documentation, they will review it and determine if you owe any additional taxes. If you do owe additional taxes, you will be sent a bill for the amount due.

If you are being audited in person, you will need to meet with an IRS auditor at their office. During the meeting, the auditor will review your documentation and may ask additional questions about your tax return. If the auditor determines that you owe additional taxes, you will be given a bill for the amount due.

What if I don’t agree with the audit results?

If you don’t agree with the audit results, you have the right to appeal the decision. You can file an appeal online or by mail. Be sure to include any supporting documentation that you think will help your case.

The appeals process can be lengthy, so it’s important to be patient. If you still don’t agree with the decision after the appeals process has been exhausted, you can file a lawsuit in Tax Court.

The best way to avoid an audit is to make sure that your tax return is accurate and complete before you file it. Be sure to double-check all of the information on your return and keep good records of all of your income and expenses. If you are selected for an audit, remember that you have rights and there are ways to appeal the decision if you don’t agree with it. Also, be sure to hire an attorney if you need help navigating the audit process.

At the end of the day, it’s important to remember that the IRS is just doing their job. They are trying to ensure that everyone pays their fair share of taxes. So, even though an audit can be stressful, try to stay calm and cooperate with the auditor. With a little patience and understanding, you’ll get through it.

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