April can be a stressful month for Texas taxpayers as they struggle with the complexity of their taxes and rush to file their returns for the IRS’s deadline; however, tax audits can strike at any time of year. While only about 1 percent of returns are targeted for audits by the IRS, this amounts to roughly 1.5 million taxpayers. Audits are not necessarily bad news; IRS audits resulted in refunds for about 54,000 taxpayers in 2012. However, tax audits can also end in severe penalties. In some instances, taxpayers accused of listing incomplete or false information on their returns can face an audit fraud case.
In 2012, approximately 75 percent of all audits began as correspondence audits, which are letters the IRS sends to taxpayers asking for more information. Audits can be initiated for a number of reasons. For instance, the IRS may be seeking receipts or other documents to back up the data on a given taxpayer’s filing, or it could be investigating when a filer’s W-2 and 1099 forms list conflicting figures.
Individuals hiring accountants or tax professionals may wish to file Form 2848, which grants these experts power of attorney to interact with the IRS on their behalf. Such professionals typically have easy access to any relevant information and a superior understanding of the IRS’s operations and demands. Regardless of whether one chooses to elect a representative or correspond with the IRS alone, it is important to respond to any letters by promptly sending the agency any requested data.
Most audits are resolved once the targeted filer sends the IRS all requested information and pays any additional taxes incurred by the agency. Those who do not agree with the IRS’s assessment of their case are entitled to appeal, but many experts recommend securing legal counsel before doing so. Accountants are not subject to the confidentiality agreements that bind tax attorneys, making the help of a lawyer crucial for many taxpayers.
Source: MarketWatch, “How to handle an audit,” Jonnelle Marte, March 29, 2013