IRS Audit, IRS Audit Help, IRS Audit Process

Why Should I Care About the IRS Audit Process?

November 1, 2012 - IRS Audit, IRS Audit Help, IRS Audit Process

  Why should I care about IRS and their Audit Process now, at this time of year? Historically, the IRS begins to hire their new employees at the beginning of their fiscal year which begins in the fall. I just can’t remember if it begins in September or ends in September. They will have completed their prospective new employee interviewing, offering positions to successful applicants and then start training those who have accepted their new assignments. Can you hear the Mission Impossible theme song playing here? There have been stories that the IRS IS hiring rebutted other stories saying the IRS is NOT hiring. Has there been a hiring freeze? Are new agents and auditors in training as you read this? Whether of not they are hiring new employees, IRS training is ongoing year in and year out. The whole point is, it doesn’t matter what percentage of the over 235 MILLION tax returns expected to be filed in 2011 are audited. If, I really mean WHEN, YOUR return is chosen, that is what is most important to you. It’s 100% for you!   My Experience When I took my first job as an Income Tax Auditor with the IRS, I had NO, absolutely NO, experience in taxes other than from preparing my own personal tax return. I had someone else prepare my return after I purchased my first house. That was new for me and I didn’t want to miss anything that would help me. After that one year, I returned to preparing my own return. Today, I feel I know the tax laws, but if I didn’t have my professional tax software to help crunch the numbers, I wouldn’t do my own. I am very pleased that my clients feel the same way and trust me to do my best for them. What experience did I bring to my new job as Tax Auditor? The IRS believed, based on my scores of an exam that was used in those years for Civil Service employment applicants, that I used good judgment in making decisions. That is the whole job of the tax auditor. They examine the facts, properly apply the tax laws and determine if the correct tax has been paid or not. The IRS taught me how to read a tax return. The IRS taught me what the tax laws were. The IRS taught me that ALL income is taxable except that which is excludable by the tax laws. The IRS taught me that NOTHING is deductible unless specifically allowed by the tax laws. The IRS taught me how to research the tax court cases. I learned which cases were in the favor of the IRS and which cases were not in favor of the IRS. Guess which ones the IRS uses. But they have to know all of those cases because guess which ones I want to use now that I am on “the outside.”   Now is the Time… So what? Why am I talking about this now? Because NOW is when IRS notices are being sent out. NOW is when new audits, NEW examinations will begin soon. This is November 1st, 2012. The only reason I date this is to show you the time line you need to know. Any 2011 return not already filed is just plain late. And chances are, unless you made a mistake that will be revealed in processing your tax return you will not hear from the IRS quite yet. Processing your return is not examining your return. Processing your return is simply receiving your return and issuing your refund or invoicing you for any balance due. IRS is quick to issue refunds first because they don’t want to pay your interest for waiting too long to give you back our own money. The statute of limitations is KEY. The IRS has only three years from the time you file your return (or April 15th if you file before the due date) to examine that return. That means the clock is ticking for them and for you, too. They don’t want to run out of time to assess any additional tax due. And if they don’t ASSESS (not collect) any additional tax due before April 15th, 2015 (2011 timely filed 4/15/12 plus 3 years) then heads will roll at the IRS. The IRS does have additional time to COLLECT taxes due, but that is a totally different discussion.   You Have Been Chosen… What you need to understand is that when the IRS chooses YOUR tax return, they believe there is an error for them to discover. It’s like a treasure hunt for them. Your return has been selected for potential of error. They just don’t know if there is an error or not. And if there is an error they don’t know for sure where it is. But they have a pretty good idea where it might be. They are going to ask you to PROVE that you were right in claiming those deductions or credits. They are going to ask you to PROVE that you claimed the correct amount. They will want to see your receipts. Do you still have them? Did you ever have them? Will every audit cost you money? Not necessarily. The job of the IRS Tax Auditor or Revenue Agent is to determine that the CORRECT amount of tax was paid. If you paid too much, the examination results in a refund due you. They get to write YOU a check. If you paid too little, the examination results in a balance due the IRS. You get to write the IRS a check. Third, the examination may result in no change. That would be best for you. 🙂 Will every audit cause you inconvenience? Yes, guaranteed. Don’t you have better things to do than dredge up old tax records 12-30 months after you filed your tax return? Will every audit cause you anxiety? Maybe Yes. Maybe No. Not necessarily so. That all depends on how well you kept your records, how closely your tax return relates to your tax records and how well you easily you can locate and provide those records (receipts) to the IRS to prove the items reported on your return. They should be the same. And you shouldn’t have to scramble to find them. It’s all about PROOF. And YOU are the one who must PROVE that your put the right numbers on the tax return you gave the IRS. You do sign that return under penalty of perjury, you know. I know I raised some questions here. I hope I also answered some questions. If you still have questions, please comment and add to the discussion.   To your lowest legal tax,   Nellie T Williams, EA