What is an audit?
An audit is an inspection of an
individual's or entity's books and
records by the IRS. If you're being
audited, the IRS will send you a letter
stating which type of audit applies to
you.
There are 3 types of audits: a correspondence audit,
a field audit or an office audit.
Correspondence Audit: You don't need to
see an IRS agent for this type of audit.
The IRS will request documentation, and
you will be able to mail it to them
instead of delivering it in yourself.
Field Audit: If the IRS needs to verify
information about your home or business,
they may come to see it. Field audits
usually involve physical IRS
Inspections, and generally would have to
do with a business.
Office Audit: You must visit an
IRS agent in their office and provide documentation
based on what was requested.
You are
responsible to keep all supporting tax documentation
for 7 years in case of an audit.
Returns claiming the Earned Income
Credit are more likely to be audited by
the IRS.
Preparing for an Audit
Always be sure to provide everything the IRS asks for
within the requested amount of time. If
you're asked to appear before the IRS,
you should bring along your tax return
and all of the supporting documentation
for the tax year being audited, along with
any other documentation or items
requested in your IRS letter. Never let the auditor
keep any of your originals documents, always
provide them with copies of everything
requested.
IRS Terms
Lien: This is a legal claim to your
property as security or collateral for
payment of tax debt. Basically, the
IRS is telling you your property is now
eligible to be seized and is being used
as a security for your debt.
If the IRS
files a Notice of Federal Tax Lien, all
your creditors are publicly notified.
Liens may occur when:
The IRS assesses your outstanding tax
liability.
The IRS sends you a Notice and Demand
for Payment in the amount owed.
You do not pay the entire
debt within 10 days after you are
notified.
If you have paid your taxes due or made
arrangements for payments within the 10
day time frame, then the IRS will
send you a release of the Notice of
Federal Tax Lien within 30 days.
Levy: A levy is a legal seizure
of your property to settle a tax debt. The IRS may
seize and sell any type of real or
personal property or investment that you own or have
interest in, This will happen if you did
not respond to a
Final Notice of Intent to Levy and
Notice of Your Right to a Hearing. These
documents are served in person to
your place of business, or to your last
known address by certified mail.
According to the IRS annual data book,
individual returns where taxpayers
claimed the Earned Income Credit were
high on the list to be audited, business owners
filing a Schedule C are also
increasingly being audited.
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