If you’ve been notified that you’re being audited by the IRS, it’s natural to feel a sense of panic. However, if you’ve been abiding by tax laws, and you’ve been filing your taxes with the help of a reputable CPA firm, you likely don’t have anything to worry about.
The IRS conducts audits to confirm that taxpayers’ tax forms match their financial documents. The goal of an audit is to determine whether a return was filed correctly, and whether applicable tax laws were adhered to. You can expect one of three outcomes once the audit is complete. You’ll either A) owe the IRS money, B) you’ll learn the government owes you money, or C) the tax return will be accepted as it was originally filed.
Common reasons people get audited
There are several reasons that taxpayers are audited. Examples include the following:
- You may receive an audit notice if someone close to you with whom you have financial ties, such as your spouse or in some cases, your business partner, is being audited.
- You were randomly selected by the IRS computer. There are some instances in which statistical formulas flag taxpayers for audits.
- You forgot to declare income. For example, if you worked for several months as an independent contractor, but when you file your taxes, you only declare W2 income from your full-time employer, you could be subject to an audit. (Or, in some instances, the IRS may simply “adjust” your tax return and send you a bill.)
- Typos, such as inverting numbers in your Social Security number when filling out your tax forms, can sometimes lead to IRS audits.
- Did you make mathematical errors when adding up expenses from your Schedule C? Did you make an error when you tallied your adjusted gross income (AGI)? If so, you could potentially receive an audit notice.
What to do if you’ve received an audit notice
If you’ve been notified of a pending audit, be sure to contact the tax professional or CPA firm that helped prepare your taxes, as they can help you make a list of the documents you’ll need to start gathering. For example, if you took various deductions, be sure to bring receipts and/or other evidence that the deductions were legitimate.
If you have questions about why you were flagged for an audit, or you have questions about whether you should hire someone to work with the IRS on your behalf, be sure to speak with a licensed, reputable CPA.