The IRS has recently announced that, starting in October, 2007, they will be randomly picking tax returns for full-fledged audits. The plan is to select 13,000 income tax returns, from the 136 million returns filed for 2006. They expect to continue this plan for the next several years.
The IRS is under strong pressure from Congress to close the $290 billion tax gap (the difference between what is collected and what should be collected.) To do this, the IRS needs “fresh” data to update their computer program that statistically figures out which tax returns to audit in the future to get the most money.
If you used TurboTax’s Audit Alert review, does that take you out of the IRS random audit pool? No. The Audit Alert examines your return and identifies inconsistencies that could trigger a review. With random audits, all returns are in the audit pool.
The chance of receiving this random audit is slim but if you do get picked, don’t panic. The IRS says that some audits will be handled through the mail, particularly if most of the return data (like wages with a W-2, etc) can be verified in the IRS databases. However the majority of the audits will be handled face to face with an auditor in your local IRS office.
So what do you do if you get one of these random audits? If you’ve already purchased TurboTax Audit Defense prior to receiving the notice, you’re in good shape. Contact them and they’ll handle the audit for you. It’s what they do for a living.
If you have a simple return, you might do alright handling the office audit yourself. Just be sure you have all the documentation backing all the amounts on your tax return.
If you have a return with numerous types of forms (K-s, Rentals) and/or complexity (alternative minimum tax), it’s usually recommended that you get professional help from a lawyer, CPA, or an Enrolled Agent. All three are approved to practice before the IRS. By choosing one to represent you, you won’t need to deal directly with the auditor. That’s why you pay them. Beware that the more complex the tax return and /or the less organized are your documents, the more dollars it may cost.
When collecting your information for the audit, be sure you have a copy of the tax return supporting documents (sales receipts, diaries, charity donation card) for every amount on the return, no matter how small the amount, and any letters that you have received from the IRS for the tax year being audited.
If the audit uncovers a calculation error and you prepared your return using TurboTax, don’t forget TurboTax’s Accuracy Guarantee.
Remember your chance of receiving that random audit notice is .0096%. You might have a better chance of winning the lottery.
For additional information: