4 Myths About IRS Audits

There’s plenty of misinformation circling around out there about IRS audits. It’s time to clear the air and get the facts.

A Different Kind of One Percent-er

Research and hard facts tell us everything we need to know – less than 1% of the tax-paying population whose annual earned income falls between $15,000 and $100,000 experience an IRS audit each year. The odds are that slim.

When you combine the small chance of actually being audited with being accurate and honest on your tax return, your anxiety about being audited should begin to diminish.

I can feel the heartbeats slowing down already.

Myth #1 – The Life-Shattering Audit

One of the most circulated myths about an IRS audit is that an audit will destroy your life. In most cases, however, an IRS audit can be taken care of by answering a few questions about your finances.

Answering a few questions to clear things up is miles away from destroying your life. Correspondence from the IRS should be taken seriously, however an audit letter doesn’t have to send you running for the hills.

Plus, not all correspondence received from the IRS is an audit.

Just remember to keep records and receipts.

Myth #2 – Mistakes Equal an Audit

Although it’s not a good thing to make a mistake on your tax return, it surprises some people to learn that an incorrect tax return doesn’t automatically generate an audit.

The IRS uses the Discriminate Function (DIF) system to compare your return, including your deductions, income, credits, and dependents, to the average amount of the same categories for taxpayers who have similar jobs, incomes, and household situations.

Myth #3 – Professional Tax Businesses Can Safeguard You Against an Audit

Although many tax professionals would like to make you think that their services during tax time can guarantee you an audit-free future, this simply isn’t true.

When it comes to audits, the IRS doesn’t audit based on who filled out your paperwork.

Myth #4 – All Letters Received are Audits

Many taxpayers think every letter received from the IRS is an audit, but actually not all correspondence received from the IRS is an audit.  The IRS actually has three separate forms of communication and fact-checking when it comes to your tax return.

IRS adjustment letter – probably the simplest and least intrusive communication from the government regarding your taxes. Basically, the IRS will send you a letter notifying you that there was an adjustment due to a miscalculation or small typographical error.

Once you review the errors and agree with the adjustments needed, all you have to do is follow the instructions contained within the letter and you’re done.

A correspondence audit – basically an audit through the mail. You’ll receive a letter from the IRS usually asking for clarification about certain parts of your tax return. Once you supply the correct official documents requested by the IRS, usually documents confirming deductions and expenses, the correspondence audit will be satisfied.

An examination audit – Usually the product of an irregularity found by the DIF system. Some audits can be handled over the phone or through the mail, however you may meet with an IRS agent to finalize the procedure.

Just remember, an audit isn’t the end of the world – simply make sure you’re accurate, honest, and keep your receipts and records.

Comments (1) Leave your comment

  1. in my 2013 tax payment I included a $33.00 penalty because I had been late in paying estimated taxes. The IRS sent me a check for $33.00 with no explanation nor cover letter so I have to assume that they just refunded the penalty payment!

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