Six Major Trends in IRS (Internal Revenue Service) Audits

An IRS audit is an examination of a company’s or individual’s financial record done by an IRS agent. The information is reviewed to ensure that their tax records adhere to the tax laws and that the amount owed is accurate. The majority of taxpayers see IRS audits as intrusive inquiries into criminal activity. On the other side, anything that raises suspicions about the amount of tax missing from your financial records will trigger a tax audit or probe.

Tax audits come with IRS tax resolution services so you can make the decision that suits you best. The feeling of owing money to the IRS is one of the worst feelings you can have. It’s easier to take the measures that are right for you when you’re aware of current trends. That’s what we are going to discuss in this blog.

The major trend in IRS Audits

  1. IRS audits are best conducted by mail.

Audits by the IRS are known to be carried out by letter. IRS reforms in the late 1990s hastened this trend, with the IRS auditing 47 percent of taxpayers by mail by 1998. The IRS now audits the majority of small credits and deductions by mail answers, in which taxpayers send the needed paperwork and tax information to the IRS’s leading campus site.

  1. The main issue confronting taxpayers is not an audit.

An IRS audit is three times more common than a CP2000 Automated Underreporter notification. Because the IRS is not permitted to examine the taxpayer’s books and records, the CP2000 notification is not an audit. The vast majority of taxpayers, on the other hand, are unaware of the distinction between an audit and a CP2000 notification. An additional tax may be proposed on a return if CP2000 detects anomalies in IRS data. As the number of underreported automated processes diminishes due to a lack of IRS resources, taxpayers become more relaxed.

  1. The prosecution of tax evasion isn’t as frequent as it was.

People are being arrested and charged for tax evasion significantly less frequently because the IRS’s resources are stretched thin regarding audits. In most circumstances, the IRS is only interested in the money and will cooperate with you in any way that makes sense.

In essence, this means you’ll be able to set up a payment plan to pay off your account in monthly installments. Most payment plans require a minimum payment.

You can also make an Offer in Compromise (OIC), which allows you to pay less than you owe on your tax bill. You can keep track of your account balance and settle it without incurring any further fees. 

Because criminal charges are less likely, you should try to achieve an amicable agreement or contest any charges you believe are false or invalid.

  1. You can expect a field audit in the great majority of cases.

It takes a lot for the IRS to send someone to your door to conduct field audits.

If you answer your mail, acquire proof to support any claims, fill out forms carefully, and include any other correspondence, you should only have to visit or speak with an IRS agent. As a result, be prepared to erect any required defenses, and never assume that an audit will not occur.

  1. Field audits are rare and expensive.

Audits performed in the field tend to be more expensive and rare. Complex taxpayers and cases of tax evasion schemes and corporations typically fill in these forms. According to the IRS, more audits result in a higher return on investment and lowering the audit rate causes the US Treasury to lose a lot of money. In 2018, there were $85,400 field audits, which was a reduction from the previous year. The IRS conducted fewer than a million field audits in 2018, making the process simpler for taxpayers.

  1. You are unlikely to be charged with tax evasion.

The number of IRS field auditors and criminal investigators has reduced dramatically. Between 2013 and 2018, the number of special agents and revenue agents has declined by 21% and 26%, respectively. In the end, fewer indictments and criminal investigations take place. In 2018, there were just 636 tax source crime assumptions, although the number is progressively reducing. The IRS has reduced tax evasion prosecutions over time, and criminal inquiry cases have declined by 58 percent since 2013.

Strategies to avoid an IRS audit:

We usually don’t look forward to a tax audit. It’s easy to get distracted from problems, but you must stay vigilant if you want to run a successful small business! Even if you don’t think the IRS audit you, you should learn to communicate with them. Here are the top three tactics for surviving an IRS tax audit.

  1. Give a thorough explanation to a tax auditor.

When replying to tax auditor queries, avoid broad categories. Ensure you have proof to back up any odd deductions your company is claiming – anything an IRS examiner hasn’t seen a thousand times before. Answer the questions directly, and unless pressed, don’t go into detail.

  1. Automate accounting instead of keeping receipts in a shoebox.

Stop stressing about an IRS tax audit and get out there and live your life. The shoebox must get discarded! Ensure that your company’s revenue and expenses are tracked and reported annually. Accounting software and services can help you through the sometimes tricky accounting process. It will give you great peace of mind to know that all of your financial statements are in order.

  1. Get assistance with a tax audit.

If you’re unsure how to reply during a tax audit, the most significant thing you can do is seek assistance from a tax specialist. Audit representation, also known as tax audit defense, is the practice of having an authorized legal practitioner represent you during an IRS tax audit. An audit representative may assist you in developing a company-wide defense strategy. Last year, 2.6 percent of audited taxpayers disagreed with the IRS auditor’s conclusion. You have the same right to disagree with me as I do. Tax experts can assist you in communicating with the auditor without becoming defensive or enraged. You will be more successful if you have a sound communication strategy in place.

You have the right to file an appeal if you disagree with the IRS’s judgment. There are various IRS tax resolution services for your help. Such as offer in compromise, installment method, IRS tax appeal, and many more. 

The auditing process is easier to navigate when you know what to expect. Keep a close check on your money management. To avoid frequent errors resulting in IRS tax audit red flags, use technology solutions. Don’t be scared to seek help from tax experts who can help you prepare an audit defense if necessary.