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What happens when the IRS audits my income tax return?

The American Law Institute recently held a CLE conference, short for continuing legal education, at which a couple of Internal Revenue Service employees spoke. The CLE dealt primarily with audits of tax returns and the process that the IRS uses to examine taxpayers' information.

To many, audit procedures may be shrouded in mystery. But the talk given by the IRS employees laid bare some of those procedures. For example, Irvine residents may be interested to know that the IRS institutes very few audits at random. Instead of picking a return out of a pile, the IRS relies on referrals in choosing which taxpayers to audit. The referrals themselves pass through a vetting process before the IRS decides which referrals indicate the need for an audit.

Once in an audit, the IRS may request documents from taxpayers. One of the IRS employees openly admitted that agents ask for particular papers because they believe there is a tax issue related to those documents. The moderator of the CLE discussion noted that requests are not always narrowly focused, and taxpayers can experience difficulty complying with them.

If the audit reveals tax deficiencies, the IRS will assess penalties, which can be mitigated in certain circumstances. The IRS employees stated that the agency tries to be reasonable in disputes with taxpayers and gives them a chance to argue their case. Where the IRS and the audited taxpayer cannot reach an agreement, the taxpayer can bring the case to the Appeals Division.

The employees also stated that where audited taxpayers have questions or problems, they should talk to the IRS agent assigned to the case. While the IRS may espouse reasonableness in audits, it does not represent the taxpayer's best interests. The complexity of audit procedures and the necessity for taxpayers to protect their rights should counsel people to have an experienced tax professional on their side when they enter an audit.

Source: CCHGroup, "Amended Return Will Not Automatically Trigger Audit, IRS Manager Says," Brant Goldwyn, Oct. 22, 2012

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