The IRS has never been more rigorous in its focus on closing the tax gap – the difference between what it actually receives in taxes each year and what the IRS believes it should collect. The IRS reports conducting 1.6 million audits in 2010, up 200,000 from 2009. There are no indications the IRS is likely to slow down for 2011 returns.
The IRS selects returns to audit based on a number of methods. If the IRS obtains information regarding potential tax abuses it is likely to audit the individual or organization. The IRS also uses two scores to determine audits: the Discriminant Function System and Unreported Income. If a computer identifies a return as a high scorer on either measure (the DFS measures the likelihood of error) IRS employees will shift through the highest scorers to determine who should be audited. The IRS will also audit returns where there is incompatible information, such as when income reported does not match an employee’s W-2 Form.
If you are one of the many subjects of an IRS tax audit, there are a few actions you can take that may help. You should also be aware of your rights. First, you should know not to panic; the IRS will not come banging down your door asking questions. In fact, the majority of audits are conducted through mail correspondence. You may never have to be the subject of an IRS interview. You also have the right to know why the IRS is auditing you.
The other important right you have is the right to representation. Obtaining an experienced attorney can help you to navigate the IRS tax audit process as painlessly as possible.
Next steps include:
The more income an individual taxpayer makes, the likelier he or she will be audited. Audits for incomes over $200,000 were at 11 percent in 2009. However, the IRS may potentially audit any taxpayer if it believes it has cause.
If you have been audited, speak to an experienced audit representation attorney to protect yourself.