The idea of an IRS audit will likely cause many taxpayers’ stomachs to churn in worry. Fortunately, with the right guidance, the audit process is often straightforward and painless. That said, there are numerous myths that can frighten and overwhelm individuals even when they have nothing to worry about.
Common myths can include:
- An electronically filed return is more scrutinized for an audit: While there might have been levels of mistrust and fraud decades ago with e-filed returns, the IRS now expects the vast majority of paperwork to be sent digitally. With improved encryption and strict accuracy standards, the IRS generally encourages the use of tax software.
- The IRS uses audits to intimidate taxpayers to admit wrongdoing: While this might be the popular perspective to take in entertainment media, the IRS generally views the audit process with an accounting goal. Essentially, they are attempting to correct errors in the taxpayer’s paperwork. In fact, a significant percentage of audits occur, start to finish, through only mail correspondence.
- The lower the income, the less chance of an audit: Many people think they are immune to an audit simply because they don’t make enough income. This does not matter in the eyes of the IRS. Audits are more triggered by filing errors, underreported income or erroneous deductions than the amount of income, refund or debt on a return.
- After the refund arrives, the chance of an audit drops to zero: While many people might think the entire matter is over once a tax refund arrives, it is in the agency’s best interest to handle that portion of the process quickly. They benefit from sending the refund quickly rather than paying a taxpayer interest on the amount while they are investigating the return. The IRS can go back three years to audit a return and might even go back six years if the error is large enough.
If you receive a letter from the IRS notifying you of an audit, it is best to respond quickly and truthfully. In many situations, seeking the guidance of a skilled tax law attorney is a crucial first step.