What Happens When You Get Audited By the IRS?

Tax season is here and some people either love this time of year or hate it.

Each year taxes get slightly more complicated for me since I’m not self-employed and recently got married. When changes are made to your income, marital status, or assets, it’s likely that it can affect your taxes.

Getting married, changing careers, and buying a house are all reasons to go over your taxes closely and with a more critical eye.

No one wants to go through the process of being audited, but it’s possible for you or the person who files your taxes to make a mistake so there’s always a possibility.

Luckily, I’ve never been audited myself but my friend Jason has so I reached out to him to hear first hand how the process was for him and the steps he took to get back in good graces with the IRS.

If you’ve been audited recently or are interesting in learning about what you should do if it ever happens to you, here are a few important things you should know.

Sometimes the IRS Doesn’t Always Reach Out Quickly

Jason Butler filed his 2013 taxes like usual and thought nothing of it after everything was said and done. In November of 2015, almost two years later, he received a letter from the IRS stating that he was being audited.

“All of the sudden, I was asked to provide a 1098 T form and a 1099 form and I was shocked,” said Jason, founder of the site The Butler Journal.

Last year, the number of expected audits hovered around 1 million. It’s not uncommon to find out that you’ve been audited by the IRS and the first thing you should do if you receive a letter is to make sure it is actually coming from the IRS. The next thing you’ll need to do is weigh your options and clear up any issues.

It’s important to realize that the IRS can audit you years after you’ve filed a suspicious tax return so it’s always best to stay organized.

Understanding What the IRS Wants

The IRS may audit you if anything looks suspicious or ‘outside of the norm’ when reviewing your tax paperwork. The auditor will most likely recommend that you make a correction which could mean paying more money in some cases.

You only have two options at this point since you can either agree with the IRS that you need to make a change or you can fight against it if you’re sure you aren’t in the wrong.

Since the whole process can be confusing and hectic, Jason sought out help from a trusted friend who does taxes. He realized that in his case, the IRS was correct and he did not report income for extra earnings he made that tax year.

“The overall process took about 4 months to sort out,” Jason said. “I realized I never turned in a form and I owed money.

Jason’s situation was not one of the most severe cases and he was lucky to be able to sort everything out without having to hire a 3rd party company or accountant to go through all his records for him.

He said his first option was seeking professional help but he kept receiving conflicting information from other sources so he decided to go to someone he knew very well and trusted to give him honest advice and guidance.

If you’ve been audited and are confused about how the whole process works and what you need to do, I’d highly recommend talking to a tax profession who you trust about it or even seeking out legal help. I can’t really provide specific tax information here since I’m not a tax expert and there are various different reasons why someone may be audited. Just to summarize, here are a few different types of tax audits the IRS can do:

Correspondence Audit: For this type of audit, the IRS service center asks you for more information concerning a part of your tax return which generally includes receipts, checks, etc.

Office Audit: In this case, the IRS will often ask you to bring certain documents into your local IRS office to conduct the audit in person.

Field Audit: For this type of audit, an IRS agent comes to your place of business to conduct the audit in person.

Taxpayer Compliance Measurement Program Audit: This is a complex type of audit where every part of your tax return must be reviewed and verified. The purpose of this audit is to update the data used to write the computer scoring program.

Once you know what type of audit you’re experiencing, you’ll be able to seek out help and counsel from reliable resources.

Preventing Being Audited

If you are on the other side of the spectrum when you get audited and you need to prove you made certain payments, you’ll need to organize all your tax information and continue to keep important paperwork on record.

Nothing is worse than being asked to come up with paperwork and receipts you don’t even have. It will also help to get your taxes filed the same way each year. If you are working with a CPA who does a good job, it pays off to have someone on your side who is familiar with your situation and has a copy of all your documents and payments.

For Jason, he learned a lot from being audited and while no one can control when and how often they get audited, he is taking preventative measures to avoid letting it happen again.

“I learned to stay organized and bring all my tax information with me when I go to file moving forward,” said Jason.

“It doesn’t hurt to double and triple check either. Whenever I receive extra income that is more than $600 for the year, I plan to report it on the correct form.”

Have you ever been audited before?