- The IRS to Begin Random Audits of Income Tax Returns
The IRS to Begin Random Audits of Income Tax Returns
The IRS has recently announced that starting October 2007, they will be randomly selecting tax returns for full-fledged audits. The plan according to the IRS is to select for audit about 13,000 income tax returns from the 136 million returns that were filed for 2006. The IRS expects to continue this audit plan over the next several years.
Why are they doing this? 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 determines which tax returns to audit in the future to get the most money.
If you used TurboTax's Audit Alert review, will that feature take you out of the IRS random audit pool? No. The TurboTax Audit Alert examines your return and identifies inconsistencies that could trigger a review. However, with IRS random audits, all tax returns are in the audit pool.
The IRS says that some audits will be handled through the mail, particularly if most of the tax return data (like wages with a W-2 form, 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 this new random audit program has you nervous, you can still purchase the Audit Defense coverage, even if you've already filed. You cannot purchase it after you receive an audit notice, though.
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-1s, 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 IRS audit uncovers a calculation error and you prepared your return using TurboTax, don't forget TurboTax's Accuracy Guarantee
 | Note: The chance of receiving random audit notice is slim but if you do get picked, don't panic. Remember your chance of receiving that random audit notice is .0096%. You might have a better chance of winning the lottery! |
