Many fear the thought of receiving an IRS audit notice. Because of this fear, our tax firm has often encountered clients that put off opening any IRS letters for the fear of being notified of an audit. First, if you do receive an IRS audit notice, DO NOT PANIC. Second, DO NOT IGNORE IT. Ignoring it will not make it go away. Although an IRS audit may seem like a scary process, it does not have to be if you seek the appropriate help and take the necessary steps. The information provided below will help guide you and answer commonly asked questions regarding IRS audits.
What is an audit?
The IRS definition of an audit and what likely jumps into your mind as an audit can be very different. Mostly gone are the days of being in a non-descript room, with a single lamp above a table, with the green visor and armband clip of the much too serious looking auditor with a cigar in the mouth and an adding machine [the things that has that roll of paper spilling onto the floor] asking, ‘where are your receipts?’. In-person audits still exist, and you can even request one to be done (if you are really that brave…), but most are done via mail correspondence at this point, called correspondence audits. Which range from simple matching errors (the IRS got 3 W2’s and you only reported 2 of them on your tax return), to certain things that are out of balance and they just want proof of that one thing (you have $50,000.00 of income and $20,000.00 in charitable donations – which could be totally allowable, they just want you to prove it, and just that). Truthfully, it is a computer using sophisticated algorithms sending these letters out, most of the time a human hasn’t even seen anything just yet. So again, DO NOT PANIC.
How does the IRS notify me of an audit?
IRS audit notifications are done by mail. Please be careful of scams. The IRS does not notify of an audit review by email or via phones calls – they really do just love sending and getting mail, they are like a government body of introverts – I send letter, you send me letter, no one has to leave their snuggies!
When you receive your notice make sure to read it carefully as the letter will explain the issues involved and the necessary documentation that will need to be provided to the IRS. If you would like help during this process, just scan the front and back of each page of the letter and send it to us and we can help you out. The IRS will request the needed information to be submitted usually within 30 days, however you may contact them directly to request additional time.
Can I go to jail for an audit?
A giant fear – and I mean a Godzilla-sized fear that many have is the IRS is going to break down their door and drag them to federal prison in chains. That is a fear easily put to rest. Look up the people that this has happened to on the all-powerful and all-knowing internet. Al Capone was arrested for enormous tax fraud. He was a… very bad man. If you made a mistake on your tax return, that is not jail time. Negligence is not something you typically go to jail for. You still must pay your tax and fix the mistake, but it basically ends there. Willful negligence is an entirely different thing. I’m certain we can all think of different adolescents, one who makes a mistake (and has to correct it) and one who has intentionally altered events so that it is like the mistake didn’t exist (the parental chastisement tends to be a little bit more than ‘that is wrong, fix it’ in those scenarios). If you are doing things that fit the willful negligence example (on your taxes, or anywhere else in your life) then you should rightfully have the Godzilla size fear [and stop doing those things!]. If, however, you are honestly trying to do it correctly and mess it up, fear should be the farthest thing from your mind and heart. You will eventually get a letter telling you what the IRS computer thinks is wrong – and you will have a chance to respond and say either ‘yep, my bad, here’s the check you need’ or ‘Nice try french fry, but I’m a perfect angel and here are the reasons, or proof, of why I don’t need to send you a check’. [We may not actually use that wording in our correspondence with the IRS but, yes that does 100% happen – get a letter, write a letter, no additional tax due].
If the situation does in fact merit and in person audit, there is still no immediate threat of jail, no officers standing by, it is paperwork. They want to work with you to fill out their paperwork, then go back to their comfort zone, do the final touches on the paperwork – and mail it to you when complete.
How are audits conducted?
Although the IRS’s initial contact for the audit will be by mail, reviewing of the items requested in audit notice can be done by mail or through an in-person interview.
How long will my audit take?
The length of time it takes to conclude an audit can really depend on several factors; Complexity, availability of being able to provide documentation, and availability of time between IRS and the taxpayer all play a role in determining how long the audit will take. The IRS tries to respond in 30-day increments, 30 days is possible, but 60, or 90, or more is generally more common. If you end up going back and forth a few times in the letter game, an issue not being resolved for more than a year is not exactly common, but is also not unheard of. It is hard to just sit and wait for the IRS to respond, but once you have sent your response to them, there really isn’t much to do other than check your mailbox periodically.
Seek professional help
Have you ever heard the phrase, a calculator is only as smart as you tell it to be? The IRS knows that the letters being sent out are not 100% correct. At one point in time, more than 50% of the letters sent out were not accurate. For everyone person with a horrible feeling just from looking at the envelope from the IRS there is someone who will just as easily say ‘I’ll just pay it so they leave me alone’.
Because there are so many factors involved in the audit process, my biggest piece of advice is to seek the help of a professional. Audit representation from a professional can help make this scary process a lot more manageable because they work with you, and can even act on your behalf during the IRS audit. Most taxpayers lack the sufficient knowledge in tax laws to defend and represent themselves. A tax professional’s job is to find the best way to defend the taxpayer, help prepare requested documentation, handle correspondence, and be present during any in person meetings.
If you have received notification of an audit and you are looking for representation, Molen and Associates can provide this service for you. We work hard for you as your representation to handle interactions with the IRS so you will not have to. Audit representation is an investment worth making to avoid a horrible audit nightmare and to make sure you are not taken advantage of by the IRS auditors.
Griselle Mejia & Charles Steinmetz