Understanding IRS Audits

Some Background

First, a small history lesson. In 1998, the IRS Reform and Restructuring Act was passed, ordering the IRS to focus much more on taxpayer rights instead of collection activities. As a outcome, about one out every 79 tax returns were audited that year. This dramatic reduce continued, and by 2003, according to IRS data, only one of every 150 person taxpayers were audited.

I am afraid this positive trend did not continue although. The IRS quickly returned to their wicked ways and by 2005, the number of audits hit it is highest since 1998. The 2006 tax year saw 1.28 million people audited.

One big reason this occurred is because taxpayers, primarily those that skew their numbers purposely, became as well bold. Much more and much more tax errors had been being made and the IRS decided to step up collections again. So the same lawmakers who once demanded the IRS give taxpayers the benefit of the doubt started applauding the new aggressive approach. Members of Congress are hoping that enhanced enforcement efforts will help close the $345 billion tax gap. According to 2001 figures, that quantity represents the difference in between what taxpayers should have paid and what they actually paid. So, without some help from additional IRS collections, Congress would have to think about raising taxes.

But don't let worry of a possible audit discourage you from filing for credits or taking legitimate deductions. Even though some actions taken on your tax return are most likely to raise a red flag, that doesn't necessarily mean you will be audited. Even if your return is questioned, it is not absolute that you'll end up owing the IRS. As lengthy as your deductions and costs are legitimate and you have documentation, you will have absolutely nothing to worry about.

Types of Audits

But nonetheless, if you've discovered yourself in the cross-hairs of the IRS, it is important to know what you're up against. Read below to learn about the various kinds of audits and what type of trouble you are in.

Correspondence Audit: The correspondence audit is the simplest type of IRS audit. Throughout this audit, the IRS sends the taxpayer (by way of mail) a request for proof of a specific deduction or exemption taken by either completing a special type or sending photocopies of relevant financial records. On a good note, the tax payer has the greatest opportunity of winning a correspondence audit.

IRS Workplace Audit: An IRS office audit is done in an IRS workplace and is mainly about simple tax matters.

Field Audit: Field audits are generally the most total IRS audits and are performed by experienced IRS officers. I am afraid to say that a field audit generally outcomes in additional tax bills for the tax payer.

IRS Repetitive Audit: An IRS repetitive audit is an IRS audit conducted on the same tax payer over and over. If no additional tax bills outcomes from an audit and the IRS wants to audit the same tax payer again, the tax payer can ask the IRS to discontinue the IRS audit on the ground of IRS repetitive audit.

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