A tax audit by the Internal Revenue Service can be a highly stressful experience for the taxpayer. However, it is very important for you to keep in mind that you have been given certain legal rights under the US tax laws. Always remember, not all sorts of tax auditing have to be a complicated process.

IRS conducts an audit as part of their verification process, where they just try to determine if the deductions you have claimed in your filing and the income you have declared out there are accurate. If you have not done anything wrong and have provided all the information accurately, there is nothing to fear about.

But yes, the important thing is that you must also have proper documented proof in support of the details you have entered in your tax return filing. Therefore, it is important for you to be well prepared in advance for the audit process.

Stages Of The Audit Process

Selection Of Taxpayers For Audit

The Internal Revenue Service follows random methods to decide which taxpayers should be audited. For example, they often use a computer scoring system to find out a list of taxpayers for auditing. This system is based on a complicated formula, where taxpayers are given scores on the basis of their past tax filing records.

Alternatively, they may simply pick a few names from a potential tax avoidance list. They first prepare a long list and then review the selected cases thoroughly to decide which ones should be audited.

The Letter Of Notification

Once the IRS shortlists the names whose tax returns have to be audited, they send letters of notification to them. Once you get this letter, you should read it thoroughly to understand the points where the IRS has claimed dispute. Once you go through that letter, you should immediately respond to IRS in writing, informing them that you have received the letter and that you are consulting with your accountant to clear those disputes.

The letter of notification often also provides a list of documents that the IRS would require at the time of the actual audit. Therefore, after informing the IRS that you have received the notification letter, you must start your preparations accordingly to defend yourself. For example, you must gather all those documents as mentioned in the letter.

Also Read

How To Respond To An IRS Audit
Understanding The Top-down Approach Of Auditing In Banks
Internal Control & Audits For Banks

Examination Of Records

The process of examination at the time of actual audit varies. There are various methods that IRS agents use in this regard. For example, if the dispute is a serious one and involves a huge sum of money, they will contact you in person and will interview you. You can be asked to come to the nearest IRS office at a scheduled time. Alternatively, the IRS agents may themselves contact you at your office or home.

As per the US laws, you have the legal right to have your lawyer present during such meetings. For less serious cases, where the amount of money in question is not a big one, you may be interviewed over phone or even just through email. If you fail to defend yourself, you will be asked to pay the outstanding tax dues that you owe along with any penalties as applicable. The audit process ends once you pay the same.

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