How to Avoid an IRS Audit

Want to avoid an Internal Revenue Service (IRS) tax audit? Who doesn’t! Justin Hein, Managing Attorney for Roni Deutch, A Professional Tax Corporation’ a law firm that has been resolving tax debts for American taxpayers for nearly 20 years’ details some things you can do to avoid an IRS tax audit.

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How do I prove my tax return is correct during an audit?

If you are undergoing an audit and need to substantiate, or prove, the statements you made on your tax return, pull out your stash of canceled checks, logs, receipts, bank statements, or any other financial documents related to your tax return. You will be asked to show all financial records that you used to show your taxable income when filing the tax return to prove you did so correctly.

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I just received an audit notice from the IRS. What am I supposed to do?

If you have received notice of an IRS audit, you should contact the IRS revenue agent assigned to your case and schedule a mutually convenient time to meet. Because you bear the burden of proof, you must show that your records and tax returns are correct, accurate, and complete. If you cannot prove your income and deductions were correctly filed on your tax returns during the audit, you will be assessed additional taxes.

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Who is most likely to be audited?

IRS audits are among the most feared situations for most taxpayers, in part because they are so invasive and carry with them the potential for back taxes to be assessed, as well as the potential for additional interest, fines and other penalties to be assessed. Fortunately, there are far more taxpayers than there are IRS employees available to do audits, so the IRS must be choosy about who it decides to audit in any given year.

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What Causes an IRS Tax Audit

The IRS uses three techniques when selecting audits. The first technique is computer screening and random selection. The IRS sets up random numerical formulas to select a certain number of people for auditing within a specified group. The next technique is related examinations. When the IRS audits a business, they also audit anyone who worked for that business. If your records do not match the documents they have on file, then you will be formally audited. The final technique is document matching.

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Are my chances of an IRS audit greater than they were in the past?

Although the Internal Revenue Service (IRS) has increased the number of IRS audits in the past decade, most taxpayers do not need to worry about being selected for a tax audit. The IRS spends most of its time and resources pursuing very high income taxpayers and corporations. Taxpayers who earn less than $100,000 need not worry as long as they are honest and file their tax returns on time. The IRS selects tax returns for tax audit by using a computer program called the Discriminant Inventory Function (DIF) system.

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Who is most likely to be audited?

According to the Internal Revenue Service (IRS), tax returns are selected for audit by using a computer program called the Discriminant Inventory Function (DIF) system. This system gives each tax return a numerical score. Nearly all tax returns that receive a high DIF score are audited because the IRS believes that there is a good chance that after auditing high DIF score tax returns, there will most likely be a change in the amount of tax owed by the taxpayer.

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Challenging an IRS Business Tax Audit

The IRS agent’s report is non-binding, which means that it is not final and you can challenge the findings by filing an appeal. If you disagree with the IRS agent’s report, first appeal to the agent’s manager. If there is no resolution, file an appeal with the IRS appeals officer. The final step is to file suit in US Tax Court.

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