Common Misconceptions About IRS Audits

The misconceptions surrounding IRS audits can evoke feelings of anxiety. Let’s debunk some of the most common ones to put your mind at ease:

Myth 1: “The IRS is out to get me.”

The IRS selects returns for audit in different ways. Some are random, and some are a result of a related return or incomplete/inaccurate information.

Randomized audits

Some audits result from a computerized review process, instead of by humans with potential personal bias. In some cases, IRS programs randomly select returns for audit.

Return mismatches

However, there are other audit triggers, like return mismatches. Mismatched information on your tax return is one of the easiest ways to invite extra IRS scrutiny. If your tax return reports income information that doesn’t match information the IRS has on file (like Forms W-2 and 1099), you’ll likely receive a CP2000 notice asking you to explain the difference.

If you receive any incorrect forms from a payer (ex. your financial institution), it’s best to ask them to fix the form as quickly as possible. A corrected copy will be sent to the IRS, hopefully solving the mismatch issue. Another potential trigger is a related return audit. For example, if you received a Schedule K-1 from a partnership, the IRS could audit the partnership return. This type of audit is mainly designed to ensure complete and accurate reporting of information across returns that affect one another.

Myth 2: “I’d better pay up – or else.”

An IRS letter is not necessarily a bill, so wait to break out your checkbook if you can show that your tax return was correct.

An audit becomes a tax bill only if you:

• Agree with the proposed changes the IRS is making during the audit
• Fail to respond to the notice by the IRS deadline
• Don’t provide the IRS with records supporting your original return

To make sure your IRS letter doesn’t result in a tax bill, submit a complete and timely response to the IRS showing you were entitled to claim all the income, deductions, and credits you reported. When sending copies of information to the IRS, use certified mail so that you have confirmation that the IRS received the information.

On the other hand, if the IRS is correct and you’ll owe a tax bill, remember that the IRS offers a range of payment options.

Myth 3: “I’m just going to ignore this IRS tax audit notice for a while.”

If you receive an IRS notice or audit letter requesting information, now is the time to deal with this. But don’t panic. There’s a process for dealing with IRS audits, and you can get expert help handling the issue.

But you need to understand that if you miss the IRS deadlines in your letter, you could be giving up your rights to prove what you originally reported was correct and to dispute any additional taxes due. Read your letter carefully to see how long you have to respond and start going through your documentation immediately.

Myth 4: Audits are a never-ending process.

Some taxpayers fear that they’ll be subjected to more IRS audits in the future once they’re audited. In reality, most audits are specific to a particular tax year or issue. Once the audit is resolved, you can move forward without worry.

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