Tax FAQs:

FAQs Relating to Audits

Q.What is the Taxpayer Bill of Rights?
A.Often referred to as the Taxpayer Bill of Rights, IRS publication 1, Your (your client's) Rights as a Taxpayer, explains how the IRS must conduct an audit and explains the rights of the taxpayer whose return is being examined. Some of these rights include the following:

  • The right to record the interview.
  • The right to propose an installment payment program.
  • The right to appeal the findings of an audit.
  • The right to conduct the audit at a time and place that is convenient for your client.
  • The right to limit the scope of the audit to those issues directly relevant to the items being examined.
  • The right to get the help of an IRS ombudsman or problem resolution officer to prevent the agency from seizing your client's property, garnishing their wages or forcing them into bankruptcy.

Q.What is the statute of limitations on the IRS auditing your client's return?
A.Generally, the IRS can audit your client's income tax return within three years of the filing date for no specified reasons. However, if the IRS believes they have under reported their income by more than 25%, it has up to 6 years to impose an audit on them. There is no statute of limitations if your client files a false return or does not file a return at all.

Q.How can my client avoid an audit?
A.There are no guaranteed methods to prevent audits, but your client can reduce their chances. Make sure they completely fill out their tax return, check and recheck all calculations, and be sure to attach all required forms and documentation. The more information they provide IRS initially, the less likely they'll come looking for answers from your client in the future.

Q.How do I prepare for an audit?
A.First things first, look over the return in question and refamiliarize yourself with it. Examine the items the IRS questioned in its notice of an audit. Gather proof and documentation for items you are uncertain about. Your client need not attend your audit. An attorney, you or enrolled agent may represent them. If they do attend, ask them to do not bring any extra paperwork not immediately associated with the items to be questions by the IRS. If the IRS tries to pressure them into beginning an audit you and your client are not ready for, reschedule the meeting for your and your client convenience.

Q.Is there an appeals process for an audit?
A.If your client disagrees with the findings of an IRS audit, they do have the right to appeal. The first appeal is to the examiner's supervisor. If they still disagree, the next step in the appeal process is the IRS Appeals Office. More information is available in IRS publication 1, Your (your client's) Rights as a Taxpayer and publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.
Q.If my client files an extension, are they less likely to be audited?
A.No, it is commonly believed that returns filed after the April 17th deadline will somehow get lost in the crowd and have a less likely chance of being audited. However, this is not the case.

Q.Is my client more likely to be audited because they have an expensive car or house?
A.No, the IRS cannot target them out for an audit just because they own property or drive an expensive car. However, if they are under an audit, the IRS may require an explanation of how they acquired these assets if their income does not match their lifestyle.

Q.Does the IRS pay a reward if I/my client reports someone who is guilty of evading his or her taxes?
A.Yes, but they are usually stingy with payments, stating that the leads supplied were not material. Reward amounts are within the IRS's discretion. They can be as high as 15% if you/your client specified information is responsible for investigation, or as low as 1% if you/your client merely supply a name. All names remain confidential. Use Form 211 to supply your/your client information in writing.

Q.What is Tax Court?
A.Tax court is used when all other appeals relating to an audit's findings have been exhausted and your client still aren't satisfied with the outcome. If your client and the IRS are arguing over an amount less than $10,000, it may be in your client's best interest to use small claims simplified procedures. About 50% of all small claims cases are won by the taxpayer!

Q.Does the IRS come to my client's home during an audit?
A.There are three types of audits the IRS can hold. A field audit takes place at your client's home or office. An office audit takes place at an IRS office. A correspondence audit takes place via the mail.