Aside from a root canal, is there anything more dreaded than an IRS audit? The fear of being audited is compounded when you’re a small business or an individual who does their own taxes. However, many of these audit myths are inflated by misinformation about the audit process. Allow us to clear up some of the more glaring misconceptions about IRS audits.
“The IRS called to inform me of an audit and potential fines.”
This had to be the first myth discussed as illicit phone scammers posing as the IRS are rampant. Please know that should your account be selected for audit; the IRS will notify you by mail. They will not initiate an audit by telephone.
“If I file late or e-file, the likelihood of an audit increases.”
Your chances of being audited have nothing to do with how or when you file. Although E-filers do get audited, E-filing does aid in eliminating certain human error that can initiate an audit. As for filing late, if you file for an extension, you should be fine.
“I need decades of records for an audit.”
Generally, the IRS can include returns filed within the last three years in an audit. If the IRS identifies a substantial error, they may add additional years. The IRS usually won’t go back more than the last six years. Here is a list of common documents requested by the IRS during an audit:
- Receipts
- Bills
- Canceled checks
- Legal papers
- Loan agreements
- Logs or Diaries
- Tickets
- Medical and Dental Records
- Theft or loss documents
- Employment documents
- Schedule K-1 documents
“I have limited rights while under audit.”
Like with any U.S. government procedure, you have rights as a taxpayer.
These rights include:
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts.
“I can’t be audited because I received a refund check.”
Receiving a refund check doesn’t mean you are free from a potential audit. A refund check is an initial agreed to your filing, but your return may still come up for review and audit.
“If I deduct too much, I’ll be audited.”
This is very inaccurate. It isn’t the number of deductions but the unlikely or odd nature of the deductions that may trigger an audit. An example that may draw an audit is claiming a hobby as a deduction. Keep your deductions legitimate and have documentation to support them, and you’ll be fine.
“If I’m audited, I will have to pay.”
An audit doesn’t automatically mean fines or additional payment. An audit may be conducted due to a simple error or a need for further clarification. It is also possible that an audit may reveal missed deductions entitling you to a refund.
We hope this helped with your audit anxiety. If you’re a small business or an individual with audit fears, having the right people in your corner can help. The enrolled agents at Sinn Accounting are those people. An enrolled agent (EA) is a tax professional authorized by the United States government to represent taxpayers in matters regarding the Internal Revenue Service. The designation of enrolled agents is the highest credential awarded by the IRS. As such, EA’s have advanced and in-depth knowledge of current tax issues. Plus, our enrolled agents can file taxes and represent you to the IRS in multiple states, unlike a certified public accountant.
Fear an audit or already being audited? Contact us; we can help.
