For many people, the word “audit” can be stressful to hear. While terms like tax fraud and audit officers may sound scary, getting audited doesn’t have to be, especially with the right support.
Simply put, a tax audit is a process done by the Internal Revenue Service to decide whether or not your reported earnings and other tax information are accurate on your tax return. If they aren’t, there will likely be an adjustment made on your original return to pay additional taxes. In more serious cases, you might also have to pay audit penalties.
You don’t have to go through an audit alone. Seeking legal help and advice can make the process much easier. You are even allowed to have an authorized representative stand-in on your behalf and defend your case during the tax audit or examination process. Usually, this will be an attorney, CPA, or enrolled agent.
Why Do People Get Audited?
Audits exist because differences exist between what people report on their federal and state tax returns and what the IRS finds in its reviews of the information. If these discrepancies are big enough, they may warrant an audit.
An audit could be a result of a simple error. For instance, a taxpayer could have used an incorrect form, or filed a form 1099 when they meant to file a W-2. Or they may have left unfiled taxes for a small side business. Errors can also occur when filing as self-employed using Schedule C.
While you may end up owing more taxes after an audit, this is not a reflection of criminal activity or fraudulent behavior. The vast majority of audits end with adjustments to reported income, often in addition to the tax owed, and in rarer cases, a decrease in the tax owed. In these cases, you will receive an audit refund check.
Sometimes people reporting very high or very low earned income on their tax returns will also trigger a closer look by the IRS. A lower income may qualify a taxpayer for an earned income tax credit, and the government wants to ensure these credits are going to the people who need them.
Types of Audits
Depending on the circumstances and reasons for an audit, there are a few different types of audits that you could be subjected to. Knowing beforehand the differences between these will help you prepare for the process.
These days, audits are usually done by mail, otherwise known as correspondence audits, wherein the IRS sends you an audit letter. However, in some cases, there is still a chance that you will undergo what’s known as a face-to-face or office audit. You’ll still be notified by mail and sent an information document request, also known as Form 4564.
This is known as an office audit because it involves an in-person interview in the IRS building with an IRS auditor. This interview could take a number of hours and give the auditor the opportunity to clarify the situation. In more complex cases, this process could end up involving multiple interviews.
A field audit is an in-person interview that involves an auditor or IRS manager visiting your home or place of work. It’s very helpful to have a tax professional or legal advisor in these cases to let you know when you are or are not required to let someone into your home.
In some cases, it might be necessary for the investigation to see your living or office space, for instance, if you’ve claimed a home office deduction on your taxes. An expert can assist you in how best to cooperate in order to resolve the situation quickly.
Payment Card Industry Data Security Standards
For business owners, a PCI audit examines the security of an organization’s credit card processing system. This is to ensure it is PCI DSS compliant according to certain information security standards.
How Long Does an IRS Audit Take?
Depending on the circumstances, the audit process takes anywhere from months to years after it’s initiated. Although the IRS legally has a three-year time limit to complete its investigation, typically most audits are done well within a year. Things that can prolong the process include the number of adjustments made, having to pay fines or penalties, owning a small business, and filing appeals.
Can You Go To Jail For Being Audited?
Because of the worrisome nature of audits, many people immediately jump to the worst conclusion. However, even in the most severe cases, it is incredibly unlikely that an IRS audit process will lead to jail time.
Basically, an audit in and of itself cannot be cause for jail time. However, uncovering criminal action during an audit can lead to further investigation that may lead to prosecution. For instance, the government must not only prove that you owe additional taxes on your tax returns, but also that you intentionally didn’t pay them in the first place. This is known as evading taxes and is a more serious issue. It indicates a criminal willfulness and is what gets people in real trouble with the IRS.
Filing your taxes can be a hassle, but ensuring that the process is done correctly is essential to avoiding an audit in the future. If you find yourself in a stressful audit situation, the experts at IRS Tax Relief Network can help you at every step of the process.