If you’re anything like the majority of Americans, a letter from the IRS is amongst your worst nightmares. Luckily, the IRS is much less terrifying than they’re made out to be but that doesn’t mean you should slack. Instead, act smart. More importantly, act fast. The quicker you begin working on your case, the lesser chance you have of being aggressively pursued by the Internal Revenue Service.
ALSO READ: How to Choose the Right Loan for Your Business
Typically, a letter from the Internal Revenue Service is a sign that you’re being audited. This process includes the IRS examining your past tax returns to ensure that there has not been any misfilings. If the Internal Revenue Service finds errors, you will be held responsible for the difference (as well as the interest penalties).
Before you panic, take these steps.
Step 1: Why Was My Return Selected for an Audit?
Though you may think that IRS will tell you why you’re being audited, they won’t. It’s your responsibility to reach out to the service and asked why you’ve been flagged.
Common Reasons for an Audit from the IRS
The most common reasons for auditing include:
Random selection. Yes, this can actually happen.
Suspicious activity. This can include (but is not limited to) incorrect w2s and 1099s, incorrect cash earnings, reports that are inconsistent with previous years, and high deductions in comparison to your income.
Automatic flagging. The IRS’s internal system has flagged your return due to inconsistency.
Shared accounts. In some cases, it may be an individual you are connected to financially being audited- leading the IRS to need to audit your returns as well.
Contact the IRS using the information found on your letter. Confirm why you are being audited and what kind of audit is being performed.
Types of Audits from the IRS
Almost all cases will fall under one of the following types of audits:
A correspondence audit. Start looking for receipts! This is when the Internal Revenue Service is asking specific questions on aspects of your return such as your expenses or checks paid out. To prepare, get your financials together. If you think they may ask about it, have it handy.
An office audit. For this audit, you are asked to appear in your state’s assigned service center. The IRS should ask you for specific documents. The audit will be performed at the service center.
A field audit. The IRS will be visiting your office to conduct the audit within your property.
A TMCP audit. The Taxpayer Compliance Measurement Program Audit is the most extensive type of audit that can be performed. In this audit, every aspect of your tax return must be backed by documents. From marriage to birth certificates, you will want to make sure that if you’ve told the IRS about it you have the documents to back it up.
Once you’ve identified how and why the IRS is auditing you, it’s time to call your tax preparer and a lawyer.
Step 2: Get Help as Soon as Possible
Though another fee may be the last thing you want to add to your current situation, your situation may only get worse if you don’t complete the audit properly. This is especially true for small business owners and corporate cats alike. Do NOT make the mistake of handling a major audit without professional help.
If the audit is over the phone or at the service center, you may be fine with the guidance of your tax preparer alone. If you’ve been told you should expect a field or TMCP audit, make sure you a tax attorney by your side. Groups like Silver Tax Group operate nationwide and have a proven history of helping clients through the stickiest of tax situations. Nationwide tax lawyers are typically a cut above the rest given that they have the connection and expertise to work across multiple state lines and unique requirements.
Conclusion: Don’t Wait
Like most things in life, the longer you delay dealing with a letter from the Internal Revenue Service the more detrimental it becomes. The sooner your call the IRS, get the tax attorney you need, and start handling it: The sooner it will be resolved.
This article is NOT legal advice. If you are confused about your situation and are seeking guidance, talk to a professional tax lawyer for guidance.
The Motley Fool Stock Advisor ranks as our #1 Best Investment Newsletter for the third year in a row.
Their stock recommendations continue to beat all of the other newsletters and they maintain a very high accuracy of their picks. Their 24 stock picks from 2018 have outperformed the market by an average of 44% as of July 7, 2019. Read that again. I didn’t say their stock picks are up an average of 44%, I said they have BEAT THE MARKET by 44%.
No other newsletter comes close to that. You may have seen the Motley Fool’ advertisements that their picks are up 367% compared to the market’s 80%. Is The Motley Fool’s Stock Advisor really as good as they claim?
Our results, at least since January 2016, suggest YES. You can now get their latest stock picks for ONLY $19/month or $99/year. But this is a special limited time offer. It expires tonight at midnight.
Get the Motley Fool’s Latest picks