Tax Law > Tax Audits
What is a Tax Audit
An income tax audit is the examination of a business or individual tax return by the Internal Revenue Service (IRS). Roughly 1% of individuals and small business that file tax returns will be selected for an audit annually. In most situations, the IRS has three years to initiate an audit, however if the audit involves offshore accounts the IRS has six years to initiate the audit.
There are three methods the IRS uses in selecting a tax return for an audit:
It is important to retain a legal professional when facing an IRS audit to ensure that you, the taxpayer, will be treated fairly, and to minimize the tax liability that may result from the audit. Without proper representation the potential for large civil penalties and even possible criminal sanctions is very real.
There are three methods the IRS uses in selecting a tax return for an audit:
- Related Examinations - Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
- Document Matching - When Payor/Employer records, such as Forms W-2 or Form 1099, don't match the information reported.
- Random Selection - Sometimes returns are selected based solely on a statistical formula.
It is important to retain a legal professional when facing an IRS audit to ensure that you, the taxpayer, will be treated fairly, and to minimize the tax liability that may result from the audit. Without proper representation the potential for large civil penalties and even possible criminal sanctions is very real.