Are You Being Audited?

An audit is a review of your tax return by the Internal Revenue Service, or IRS. For some filers, the audit could lead to a tax bill. For others, a refund could result. If you have received notice of an audit, here is what you need to know:

What Triggered the Audit?

A tax audit is not as arbitrary as some may believe. In many instances, it is triggered by a computer analysis of a tax return. The IRS relies on a software program to review returns and look for flags that could indicate a problem. For instance, if your deductions seem too extreme, the program could suggest an audit.

The computer does not make the final decision as to whether a filer will undergo an audit. Once the return is flagged, a human auditor will review the tax return and determine if an audit is necessary. If the auditor does not believe an audit is warranted, he or she can approve the return. However, if there is a reason for an audit, one will likely be conducted.

How Can You Prepare?

The idea of undergoing an audit can be scary, but with proper preparation, you can handle the situation like a pro. If you have not hired professional help, such as an attorney or tax advisor, you should consider working with one. He or she can review the tax return in question with you and help you prepare for the audit.

The audit can take place by mail or in-person at your home or a tax office. Regardless of the location of the audit, you will need to have documentation to back up the statements and calculations that were included on your tax return. Review your tax return to determine which documents are necessary. For instance, if you included charitable donations, obtain receipts for those.

What If You Do Not Agree with the Decision?

If you believe the auditor's assessment of your tax return is incorrect, you can choose to appeal the decision. Some people choose not to because they want to move on and forget it, but there are several reasons that you should consider appealing. One of the best is there is a possibility that your attorney could negotiate for a lower tax bill. The IRS routinely settles large debts and you could benefit from this.

To file the appeal, you must write a protest letter. Your letter must include your identifying information, the tax year involved, and the reason for your disagreement. Contact a tax advisory service for more information and assistance.