More IRS audits shouldn’t mean more fear when obeying tax laws
In the 2017 tax season, the IRS began using tax software that makes it faster and easier to determine if the amount of income a taxpayer reports on their tax return matches what employers and others report to the taxpayer’s Social Security number. With the addition of new audit methods and tools, more taxpayers could experience a face-to-face IRS audit, but more likely will receive an IRS notice if there is a question about the return. Even before these tools were implemented, the IRS audited nearly 1.2 million taxpayers – 70 percent via correspondence and 30 percent face-to-face – and assessed $27 billion in taxes in 2016.
“Taxpayers worried about the possibility of facing an IRS audit may hesitate to claim all the tax breaks they are entitled to claim,” said Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block. “Instead of taking the perceived risk, these taxpayers might decide to be more cautious and not claim certain tax breaks. When they do this, they are leaving their money on the table.”
Take action – report, file and get help as needed
In the face of more IRS audits, how can taxpayers keep their tax breaks without sacrificing their peace of mind?
- First, taxpayers should report all their income. The surest way to get a letter from the IRS is to omit any amount of income off their return. The IRS can easily check income reported on tax returns against what employers, banks, brokers and others report.
- Second, taxpayers should carefully document their expenses and eligibility for any tax credits or deductions they take. The IRS compares deductions taken by taxpayers in the same income bracket to find inconsistencies including mileage and charitable donations. Taxpayers who made large donations, particularly non-cash donations like clothing, household supplies or even vehicles, may have additional record-keeping requirements to substantiate those deductions.
- Finally, taxpayers should know when and where to get help when they need it. Taxpayers may need the help of a professional tax preparer at different times, depending on the taxpayers’ situation and comfort level. Some taxpayers may need help understanding whether they are eligible for a certain tax benefit, while others will need help knowing which documents and receipts they need to back up their tax return. Others might feel like they can prepare and file their taxes on their own, but may want help when it comes to navigating an IRS audit.
Audit season – it’s year-round
The IRS conducts audits year-round and will typically contact taxpayers selected for audit within a year. However, the IRS may contact a taxpayer as late as three years after the filing date. Taxpayers who disagree with the auditor’s findings can appeal the results.
“Taxpayers should respond immediately when they receive an audit letter in the mail because delays could result in additional penalties and fees. Most audits are conducted by mail and resolving the issue is often as simple as sending back supporting documents. If a face-to-face meeting is required, having a tax professional represent them could make some taxpayers feel more comfortable,” Perlman said.
The fear of an audit and the potential risk it presents – lost money and time – shouldn’t prevent a taxpayer from claiming tax breaks they can legally claim. Instead, taxpayers should take some straightforward precautions to avoid an audit if possible or be prepared in case of an audit. These precautions will give taxpayers what they need for a successful resolution, without sacrificing their tax benefits. Advice from a tax professional can help taxpayers feel confident they are filing an accurate tax return that gets them their maximum refund.
By Teresa L. Clark
Teresa L. Clark came to H&R Block in January 2010 after working as a civil servant for more than 13 years. Since that first tax season she has written blog posts and talking points, edited content of all shapes and sizes, facilitated media interviews for the experts in The Tax Institute at H&R Block and supported the DIY team. Clark has a master's degree in integrated marketing communications from the University of Kansas and is a member of the Honor Society of Phi Kappa Phi.