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An IRS audit is a review or examination of an organization's or individual's accounts and financial information to make sure your financial information is being reported correctly, according to the tax laws and to verify the amount of tax reported is accurate. At least that's what the IRS says. In reality, there aren't many things more frightening or humiliating than getting the Certified Letter that makes you catch your breath, while your heart pounds in your chest. It's a scary term - audit. But is an audit really that bad, other than the eerie similarity between an audit and the days when your mother used to root through your underwear drawer? Just because you've been served notice that you're being audited doesn't automatically infer that you've done anything wrong and your accountant or accounting firm can verify that. Nor does it always suggest that an error has been made. Despite what you may have heard, the IRS doesn’t choose to audit people just to be mean. The IRS selects returns to audit through a number of ways, including random selection and computer screening. Sometimes returns are selected based solely on a statistical formula. Sometimes, audits are spurred on by triggering issues. One example of an issue that can trigger an audit is document matching - when payer records, such as Forms W-2 or Form 1099, don't match the information reported on your return. Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns have already been selected for an audit. Like your mother said, watch out who you hang around with - they can get you in trouble! An audit may be conducted by mail or through an in-person interview and review of your tax records and supporting documentation. The interview may be at an IRS office (office audit) or at your home, place of business, or even at your accountant's office (field audit). The IRS will tell you what records are needed in either your initial letter or in subsequent correspondence. And an audit can result in no changes or changes to your tax materials but the IRS will work with you to explain any changes in your return that they suggest. http://nmscpas.com 1215 Herr Lane, Suite 210 - Louisville, KY 40222 Conatct: 502-896-2999
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