If the IRS selects your tax return for audit (also called examination), it doesn’t automatically mean something is wrong.
The IRS performs audits by mail or in person. The notice you receive will have specific information about why your return is being examined, what documents if any they need from you, and how you should proceed.
Once the IRS completes the examination, it may accept your return as filed or propose changes. These changes may affect the amount of tax you owe or the amount of your refund.
Got an IRS notice saying they are auditing your tax return?
If you are unable to understand the notice, you can use our Did you get a notice from the IRS? section on our Home page that allows you to enter the notice or letter number to find out more about it, what action you may need to take, and where in the IRS process it falls. Or you can go to our Taxpayer Roadmap directly to see where your tax return is within the IRS process, how the return got there, and what’s next. Once in the Roadmap, you can still look up a specific notice if it isn’t already listed to find out what to do next.
Type of audit/examination and what to do for each type
Tomato, Toma-toe: IRS’s Imperfect Designation of “Immediate Supervisor” Deemed Insufficient to Overturn Penalties Under Code Section 6751(b)(1)
Section 6751(b)(1) of the Internal Revenue Code provides that “[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination[.] . . .” 26 U.S.C. § 6751(b)(1). In the Tax Court opinion of Long Branch Land, LLC v. Commissioner, No. 7288-19, T.C. Memo. 2022-2 (U.S. Tax Ct. Jan. 13, 2022) (mem. op.), the court addressed what is meant by “immediate supervisor,” as that term is used in Section 6751(b)(1), as well as the doctrine of “presumption of regularity.”
In the case, Long Branch Land, LLC (“LBL”) claimed a $10,425,000 charitable contribution deduction for a conservation easement it granted to a charitable organization as well as a $3,475,000 charitable contribution deduction for LBL’s donation of a fee simple interest in real property associated with that easement. The IRS selected LBL’s return for examination.
Martin v. Comm’r, T.C. Memo. 2021-35 | March 24, 2021 | Holmes, J. | Dkt. No. 10115-15
Short Summary: The IRS examined the taxpayers’ 2009 and 2010 joint income tax returns. After the exam concluded, the IRS issued a notice of deficiency determining the taxpayer had unreported income. In addition, the notice of deficiency denied certain losses from prior years, disallowed certain deductions related to taxpayer-husband’s business, and determined that penalties were appropriate.
- Whether the taxpayers had additional, unreported income; were permitted to claim certain deductions; and were liable for the late-filing penalty and the accuracy-related penalty?
Bailey v. Commissioner, T.C. Memo. 2021-55 | May 10, 2021, | Pugh, J. | Dkt. No. 5477-14
Mr. Bailey working as an unenrolled tax return preparer assisted clients (Uwe Zink and Gary Skuro) in creating a new entity, Interradiology, Inc. (Interradiology) organized under the laws of Arizona and elected to be treated as an S corporation for Federal tax purposes in 2017. Therefore, Mr. Bailey prepared and filed Forms 1120S, U.S. Income Tax Return for an S Corporation, for Interradiology for tax years 2007 through 2012. Also, he held 10% of the shares of Interradiology during the tax year 2008 and 20% during tax years 2009 through 2012.
Mr. Bailey prepared and filed petitioners’ Forms 1040, U.S. Individual Income Tax Return, for the years in issue. He timely filed their 2008 and 2012 Forms 1040, but he untimely filed their 2009, 2010, and 2011 Forms 1040 on March 9, 2011, November 29, 2011, and February 19, 2013, respectively. The 2010 and 2011 returns both reported tax due, which the IRS assessed before the issuance of the notices of deficiency for those years.
The Taxpayer Advocate Service (TAS) reintroduces its website with a new design and layout featuring a new digitally interactive Taxpayer Roadmap.
The digital Taxpayer Roadmap features an interactive experience which allows taxpayers and tax professionals to navigate through the IRS tax process and view notices along the way. The newly designed website continues to provide valuable information and resources to taxpayers and tax practitioners that can help them resolve tax problems with the IRS, including the “Get Help” section with its more than 50 common tax-related topics available to help citizens understand and, in many cases, resolve general tax issues.
The new TAS website is an important public tax resource. The updated site focuses on what taxpayers need to know, including their rights as a taxpayer.
National Taxpayer Advocate
It’s a nice breezy day. You pick your mail up, excited because that vintage Captain America comic you ordered came in today. But, alas, instead of nerding out all afternoon, you find yourself under the covers, stressing out over a fast-approaching audit of tax your returns. Receiving a tax audit notification in the mail can be a jarring experience, especially if you spend weekends embezzling a buck or two. Fret not, for a tax audit isn’t a death sentence. In fact, if you generally avoid criminal activity, you’ll probably be fine. Okay, you’ll be fine.
What is a tax audit?
A tax audit is a formal examination into your tax returns by the IRS to either verify information or uncover fraud or inaccurate tax returns. The IRS conducts these examinations both randomly and on purpose. If they decide to investigate your financial records randomly, they will just take a closer look to verify that all the information provided is correct. However, if the IRS suspects that there are any errors or that you weren’t entirely truthful while filing your returns, they will come at you with all they’ve got. Hard.
Audit notification letters are mailed for a couple of reasons:
The IRS has published the 2017 version of its annual IRS Data Book, which contains statistical information about the IRS and taxpayer activities during the previous year. The IRS Data Book helps illustrate the breadth and complexity of the U.S. tax system. According to the Data Book, during fiscal year 2017 (Oct. 1, 2016 to Sept. 30, 2017), the IRS collected overall more than US$ 3.4 trillion from taxpayers, processed more than 245 million tax returns and other forms, and issued more than $436 billion in tax refunds.
The IRS also audited almost 1.1 million tax returns during fiscal year 2017. Almost 90% of the audited returns were individual income tax returns. While the percentage of overall returns audited was relatively low at 0.5% overall, the percentages were significantly higher for two types of taxpayers – wealthy individuals and individuals filing international returns. Read More
For years, IRS audit rates have been declining as Congress has cut the IRS budget and its workforce has shrunk. The agency has relapsed its audit statistics for 2017, which marked the sixth consecutive year that audit rates have gone down.
The number of people audited by the IRS in 2016 dropped to just over 1 million. The last time so few people were audited was 2004. Since then, the U.S. has added about 30 million people. Read More
Even though some IRS audits are chosen at random, there are a few factors that could put Texas taxpayers at an increased risk.
Taxpayers in Texas may understandably have a fear of being audited. After all, an Internal Revenue Service audit may be incredibly time-consuming and end in the consumer having to pay money to the government. However, that is not always the case. Read More
Your business is growing and you are prospering. Business is good. Life is good. Then the unbelievable happens, which turns your world upside down and pushes you into pure panic.
This panic mode is instantly brought on by receipt of an IRS audit letter.
Most of us don’t fear something exploding or catching on fire as much as we fear an IRS audit. Of course, the best way to survive a tax audit and even to come out of it successfully is not to panic, but to prepare.
Take it seriously.
Even though IRS audits are fairly routine events, they should be taken with the utmost Read More
I do not know of any business owner who wants to be audited by the IRS or their state tax authority. Audits can be simply random as “decided” by the IRS computer, or they can be triggered by certain characteristics of your business operation, for example how you’ve classified independent contractors or employees (especially if they apply for unemployment insurance, worker’s compensation benefits, or even welfare).
Do You Operate A Beauty Salon?
Here are three key items the IRS and state tax authorities look for if you are an independent contractor or if you use them in your business.
1. Is there a lease between the independent contractor and the owner? Read More
When faced with an IRS audit, an effective strategy can be the key to obtaining a favorable outcome for the taxpayer. Early in the audit process, the taxpayer or his or her qualified representative should consider the policy against repetitive examination, the IRS policy on reopening examinations, and the various statutes of limitations that apply to examination of the taxpayer’s records and books.
1. The IRS Policy Concerning Repetitive Examinations
An initial consideration is whether or not the taxpayer’s audit violates the IRS’s policy against repetitive examinations. The policy against repetitive examinations applies when the taxpayer has been audited in the past two years, and the audits resulted in essentially no change. If you are a taxpayer who has been audited once in the past two years and Read More