IRS Audits: Tips and Warnings
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.
eturns 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.
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.
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.