Guiding Businesses And Individuals Through Tax Audits
A tax audit doesn’t necessarily result in fines or criminal charges at the end of the process. While it is true that the auditor does not have your best interests at heart, they are not trying to find ways to penalize you. The job of the auditor is simply to make sure you can prove that the numbers that were submitted on your tax return are accurate. If your audit is simple and routine, an accountant may be all you need. However, if the audit is complex or if legal charges are involved, a good tax lawyer can have a significant impact on the outcome of your audit.
How Businesses And Individuals Are Chosen For Tax Audits
A small percentage of audits are chosen at random, but in general, very high income, complicated returns and small businesses are at a higher risk for audit. The IRS has a software called “Discriminant Inventory Function,” or DIF, that scores every individual and some corporate tax returns; the higher your score, the more likely you are to be audited. An audit may also be triggered due to a mismatch between numbers on your tax return and the corresponding numbers on a 1099, W-2 or other form filed with the IRS by another organization.
Types Of Tax Audits
There are four types of tax audits for businesses and individuals:
Correspondence Audit: A correspondence audit is designed to verify the details of your tax return. This is typically not very serious and usually only requires sending in documents that corroborate the information on the tax return being audited.
Office Audit: As the name implies, an office audit requires to meet with an IRS manager in person at IRS offices to process your audit. If your audit letter requires a visit to the IRS offices, we highly recommend meeting with a tax attorney first to prepare for what’s to come.
Field Audit: A field audit is very serious; the IRS will visit your home or business to conduct an audit. The IRS will likely ask to see documents and physical assets that are mentioned in your tax returns. Failure to produce these assets and documents can lead to significant penalties.
Random Audit: Unless you have committed tax fraud, random audits are not serious. An auditor will simply review your tax return to verify that the information you submitted is correct.
At Huffman, Usem, Crawford, Greenberg & Smith P.A., we have more than 40 years of experience guiding businesses and individuals through the audit process. We begin by examining your audit letter to determine what the government may be accusing you of. Our process includes a thorough review of your documents and financial records and an explanation of your obligations and risks.