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Tax Audit Guidelines

Guidelines On How To Handle A Tax Audit.

Article By : Patrick Mansfield | U.S. Gov Connect
Tax Audit

IRS Audit: What to Expect if You Are Audited by the IRS.

Many Americans dread the thought of a tax audit. If you receive a letter requesting a tax audit, take a deep breath. In most cases, there’s no cause for alarm. Below are some commonly asked questions about the IRS tax audit:

Does the IRS contact taxpayers by email?

No, you are notified of an IRS tax audit by U.S. Postal Service mail. You will not receive an email from the IRS to request an audit. If you receive an email that says you’ve been selected for an IRS audit, it’s a scam. 

Does filing an amended tax return increase my chance of a tax audit?

No, it doesn’t. However, like other tax returns, your amended return goes through a screening process to determine its eligibility for a tax audit.

Why was my tax returned selected for an IRS tax audit?

All tax returns are submitted to the screening process and, by comparing it norms and part of the IRS’ National Research Program, your return may be selected:

1. An auditor reviews the return next. It may be accepted or, based on questions the auditor notes, forwarded to the examiner group. 
2. Examiners review your tax return for specific issues that may apply and, based on their evaluation, the return is accepted, or an audit notification is sent by U.S. mail.

Where will the tax audit occur?

Mail or correspondence audits occur by mail. If your audit is conducted by mail, the IRS asks for additional information about specific items such as itemized deductions, income, or expenses:

1. In-person tax audits occur at a nearby IRS office or your place of business.
2. In some situations, you may be able to change one audit location to another. 

Is it possible for the audit location to be changed to another IRS location?

If you have moved or if you’ve changed the location of your business, the IRS may accommodate the request to change the audit location. 

Can the type of audit requested be changed?

If you have too many records to mail and a correspondence audit is requested, you can ask for an in-person meeting.

How long must long-term asset records be kept?

Asset-related records should be maintained as long as you own the asset plus a minimum of three years. 

 If you exchange the asset, the new asset basis may require the inclusion of the exchanged asset. Keep records for both until the asset is disposed of plus three years.

How long must a business keep payroll records?

In most cases, keep payroll records at least four years. If items relating to present employees are contained in the older records, retain these with your current payroll documents.

What happens after an auditor completes the tax audit?

The manager of the IRS auditor reviews the case after it’s completed. The manager reviews the file to identify possible errors:

You’ll be notified if the potential error affects the tax due.

Is an extension of the audit date possible?

Notify the auditor referenced on the IRS letter:

1. If you’re waiting for additional information to present, it may be possible to initiate the audit process or postpone the date.
2. If more than 45 days’ extension is needed, an IRS manager must approve the request.

Can IRS look at earlier years’ tax returns as part of the audit process?

The IRS can include the past three years’ tax returns in most cases.

1. If a significant, ongoing error is found, the IRS can review more years.
2. Generally speaking, the IRS doesn’t include more than the last six years’ returns.

What if an audit doesn’t resolve an assessment tax or refund question?

1. You might be asked to extend the statute of limitations (the time provided to assess tax). Typically, this period is either three years from the time the tax return was filed or when it was due (the later of the two).
2. There’s a statute of limitations regarding refunds. If you extend the statute, you have more time to request an appeal, claim credit/refund, or support your case. 

You don’t have to extend the statute of limitations but, if you don’t agree, the IRS auditor is forced to determine your tax based on the available information.
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