What if You Get Audited?
“Audit” is a word that can strike fear into the hearts of taxpayers. However, the chances of an Internal Revenue Service audit aren’t that high. For tax years 2010 through 2018, the IRS audited 0.5% of all individual tax returns. (1)
Being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says that an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.
Remember, this article is for informational purposes only, and is not a replacement for real-life advice. Consult with your tax, legal and accounting professionals before modifying your tax strategy.
The IRS selects returns for audits using three main methods:
• Random Selection. Some returns are chosen at random based on the results of a statistical formula.
• Information Matching. The IRS compares reports from payers – W-2 forms from employers, 1099 forms from banks and brokerages, and others – to the returns filed by taxpayers. Those that don’t match may be examined further.
• Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.
There are several sound tax practices that may reduce the chances of an audit: