The very mention of the word IRS audit can cause some taxpayers' stomachs to sink, shoulders to tense and brows to sweat. But while people in California are filling out their 1040s, they should know that the probability of an IRS audit and the actual process itself are not as bad for most people as they appear in the popular imagination.
The easiest way to avoid an audit is to fill out your tax return faithfully, accurately and neatly. A copy of each taxpayer's 1099 form gets sent to the government, so the IRS knows exactly what you should be claiming for wages. The IRS looks for discrepancies in your return and compares your return to those of taxpayers like you to see if anything odd sticks out, such as if you are claiming an unusually high deduction.
The probability of receiving the scrutiny of an audit is also quite low. Different income groups are more likely to be audited than others. Given the IRS's current resources and staffing levels, the overwhelming majority of Americans--those who earn less than $200,000 per yea--only stand a 1 percent chance of an audit. The IRS audits millionaires at 12 times that rate, however.
The law also limits how far back the IRS can audit returns. In general, the IRS must initiate an audit within three years of the return's due date. But if the return is fraudulent, the IRS is not bound by any statute of limitations.
But this apparently comforting information does not mean that audits should be approached casually. The IRS audits taxpayers in order to capture what it believes may be unpaid taxes. The IRS may also think that a taxpayer has committed fraud. An experienced tax attorney can help those who have received an audit letter gather the necessary documents, negotiate with the examining agent and assist in an appeal if necessary.
Source: DailyFinance.com, "Afraid of an IRS Audit? It's Not As Bad As You Think," Selena Maranjian, Feb. 20, 2012.