An IRS audit can be a complex process. Understanding the IRS audit and the different stages of an audit can help make the process less daunting.
San Diego IRS Attorney John Milikowsky
explains how to verify income during an IRS audit in the video below:
What to Expect in an IRS Audit
If you receive a letter from the IRS that indicates you’re under audit, there will be a process you’ll go through. Let’s review one of the important elements of what you can expect. Typically, audits of small businesses and those of people who are self-employed, will last anywhere between six months to a year. What IRS is looking for is to determine whether your tax return is accurate, whether the income you reported was accurate, and whether the expenses you reported are accurate.
During the audit IRS will request documents and information from you to make a determination about whether you overstated or understated income and expenses. Something some people don’t know is the IRS has some of this information at the start of the audit already!
When we represent companies and individuals who are self-employed in audits, we typically ask the IRS for a wage and income transcript to verify that the income that’s reported on the tax return was the correct amount.
So What is on the Wage and Income Transcript?
The wage and income transcript includes any W-2s that were reported with your social security number, any 1099s, and any K-1s you receive that were filed by partnerships and LLCs that had your social security number on their records. These are typically filed every year and IRS has a transcript.
We recommend, if you are under audit or if even if you just want to verify your tax return before it gets filed, order a wage and income transcript or call the IRS to request your wage and income transcript. By doing this, you can make sure that all your income items are reported on your tax return.
Other items that are non-income items that might show up on the wage and income transcript would be the 1098 form reported by your mortgage servicing company about the interest that you paid for your mortgage that year.
No matter what, when your business gets audited, we highly recommend a tax attorney, if not us, do find someone to represent you in cases of IRS, EDD or other government compliance audits.