Thousands of business and personal account audits occur throughout the United States every year. The documentation review works to ensure that you or your business accurately pays government taxes, so that you may live and work legally in the country. Evading taxes constitutes a serious crime, so it is essential to follow all tax regulations to avoid criminal charges.
Understanding the unique steps that the Internal Revenue Service (IRS) takes to ensure you pay taxes may help you in knowing what to expect during the audit process. If you or your business prove ready for its potential occurrence, your preparation may help you gather documents quickly and avoid mistakes.
The process of audit selection
Suspicious tax returns may always constitute the need for review by the IRS, but the IRS may look at your returns without necessarily seeing any specific issue. Multiple methods exist to ensure that all personal accounts and businesses pay the proper due amount. Your returns may need review in two main instances.
- Computer screening and random selection: Your returns may need review because of random selection. According to the IRS, statistical formulas exist to compare your returns with returns similar to your current employment and tax bracket. Essentially, the screening process catches those out-of-the-ordinary returns that may go unnoticed without scans.
- Discrepancies or examinations: The IRS may select your turns if issues or questionable action occurs. Perhaps the IRS selects your business partners, so it may subject you or your own business to analysis.
When the IRS selects you, you will receive notification by mail.
Providing all necessary documents
After your notification, the IRS requires you to provide necessary hard-copies as well as electronic records for your tax returns. Especially for businesses, it is important to hold onto your tax return records for at least three years after filing in case you are audited.
The IRS may go through your records for the amount of time they need to find discrepancies. Usually, the audit looks at the past three to six years. The audit itself may take weeks to months, depending on the quantity of information and potential for disputes.
Audits conclude with the following indications.
- No change: All items have been reviewed, and no changes need to occur.
- Agreed: The IRS proposes changes in your return, such as owing back taxes, and you agree to the changes.
- Disagreed: The IRS proposes changes in your return, but you disagree to the changes.
If you disagree, you must file an appeal or participate in mediation to resolve the issue. It is essential to hire an experienced attorney during the court process, so that you may use accurate representation in the findings during an audit.
The IRS ensures that required taxes are obtained from businesses and your personal accounts, and in doing so, the government may accurately designate taxes to various United States' benefits.