How does an irs audit work

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What Is an IRS Audit?

An audit is a detailed examination of records that is intended to assess the accuracy of information provided by a person or a business or other organization. An IRS audit is such an examination of records regarding taxes owed, such as income statements, and expenditures or donations listed as tax deductions. Auditing allows the IRS to evaluate records to ensure that people are paying the appropriate amount of taxes. As such, audits are usually called for against people or organizations whom the IRS has reason to believe might be avoiding taxes, or paying less on their taxes through fraudulent means--such as taking large deductions that may not be valid. Businesses and self-employed individuals who make a lot of money (like doctors or lawyers) are often targets of audits, since they are usually more able to hide their earnings. Normal hourly employees have taxes automatically deducted, so they are less likely to be subject to an audit.

The Auditing Process

When the IRS audits a person or business, it sends auditors, who are essentially accountants trained to investigate tax issues, weed through records and determine the proper amount of taxes the entity owes. A large part of the auditing process involves the party being audited providing access to all of his records. If he does not provide access to all records, or attempts to hide income, he can be subjected to monetary penalties or even jail time. Consequently, it is in the the audited party's best interest to be forthcoming with all information.

Other Considerations

While the IRS generally audits

parties that it suspects may owe additional taxes due to suspicious activity, it also carries out some audits on a completely random basis. This is a deterrent to parties who think they might be able to evade taxes without drawing undue attention; even if they can avoid suspicion, they might be selected for a random audit. It is worth noting that the majority of parties that are audited end up paying additional taxes--although the chances of being audited if you make less than $100,000 are quite low, since carrying out an audit costs the government a substantial amount of money in terms of manpower.


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Category: Taxes

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