What is the Lifecycle of an IRS Audit? [VIDEO]
Understanding the lifecycle of an IRS audit is crucial for any taxpayer faced with this daunting process. An audit can touch upon various aspects of your financial history, and being prepared at each stage is key. This guide will walk you through the stages of an IRS audit, from initial contact to resolution, equipping you with the knowledge to manage the process effectively.
The Initiation of the Audit:
The audit journey begins with an audit letter from the IRS, which includes the name and contact information of the revenue agent assigned to your case. It’s essential to verify the taxpayer under audit and the tax years in question. If you have an entity such as an S Corp or an LLC, be aware that your personal returns will likely be under scrutiny as well.
Responding to the IRS:
Upon receiving the audit letter, promptly contacting the revenue agent is imperative. You typically have 10 days to reach out, and this is the time to request a deferral of the initial meeting to gather your records and potentially engage a tax attorney. It’s not just about having time on your side; it’s about being thorough and meticulous in preparing your defense.
Gathering Documentation:
Your next step is to compile all necessary documentation. This means matching your tax returns against the IRS’s records, which can be obtained via a wage and income transcript for individuals or an I-R-P-T-R report for businesses. Ensure all income is accurately reported and prepare to substantiate your expenses with solid record-keeping.
“IRS audits are not just about financial scrutiny; they’re about understanding the story behind the numbers. The more prepared you are with your documentation, the clearer your financial narrative becomes.”
The IRS Interview:
Eventually, you will meet with the IRS for an interview. This meeting can delve into various aspects of your financial life, including foreign bank accounts, cryptocurrency dealings, and cash transactions. If you have complex financial dealings, anticipate a detailed discussion.
Understanding IRS Requests:
You will receive an Information Document Request (IDR) listing all documents the IRS requires. Timely and complete responses are crucial to prevent the IRS from obtaining information via summons, which can further complicate the process.
The Conclusion of the Audit:
After back-and-forth communication and document submission, the IRS will issue a Revenue Agent Report (RAR). Scrutinize any adjustments and be prepared to challenge them if necessary. You have the option to submit a protest letter and go through the IRS Appeals process or, if you prefer, to take the matter to Tax Court.
Navigating to Resolution:
The audit’s duration can vary, with personal audits lasting four to six months and business audits potentially extending up to a year or more. The complexity of your case and the clarity of your financial records will significantly impact this timeline.
In Conclusion:
An IRS audit is a complex process requiring a strategic approach. Awareness, preparation, and expert guidance are your pillars of strength as you navigate through the audit’s lifecycle. Should you need assistance, Milikowsky Tax Law is ready to offer the expertise and support necessary to manage your audit efficiently and effectively.
