An I.R.S. Audit is when the I.R.S. investigates the details of your tax return to determine if it is accurate. The odds that the I.R.S. will select your tax return for audit is relatively low; usually, no more than 2% of individual income taxes are audited, about 1 in every 75. However, bout 80% of all people will be audited at least once throughout their tenure as an employee. Most Americans do not have means to attract I.R.S. attention, and the I,R,S lacks enough staff to audit every citizen’s tax return. Depending on income levels and profession, you may or may not be a target for a Illinois I.R.S. audit.
An I.R.S. audit in Illinois is typically reserved for tax returns with “high audit potential”, or returns that will most likely contain a significant deficit in payment. Certain types of income, income levels, professions, transaction histories and deductions claimed on tax returns tend to attract more attention. The system is orchestrated by the I.R.S. computer, which scores each tax return with a number; the higher the number, the higher the likelihood it will be audited. Typically, the returns that are most audited reflect low income but high expenses; if the balance is off, the I.R.S. will wonder where you are getting the money to maintain your expenses. Once the computer completes the scoring process, the scores are sent to I.R.S. agents for review. About 10% of the returns reviewed are audited.
If you happen to fall in this category and are hit with an I.R.S. Audit in Illinois, it should not be shrugged off; once you have the I.R.S.’s attention, they will most likely extend their investigation beyond the previous tax year to tax returns and deductions made in years before. Ultimately, an audit can cost a taxpayer hundreds, and sometimes thousands of dollars, and even result in seizure of property and physical assets. To save your assets, your job is to prove to the I.R.S. that you reported your income correctly and took the appropriate deductions. You will need to support this with documentation, which the I.R.S. will use to help determine whether or not you filed correctly. From there, they will decide if you owe additional taxes. Most taxpayers are unable to provide all the paperwork needed, which is one of the primary reasons why the I.R.S. wins 80% of audits.
In a rare instance, the I.R.S. will discover that you overpaid your taxes and that you are owed a refund.
There are three types of audits, depending on the amount of money reported on the return. The first is a “Correspondence Audit”, which is done entirely by mail. All documentation exchanges to support the accuracy of your tax return are sent by post; in these cases, the I.R.S. usually wants to get information about real estate transactions, stock transactions and certain itemized deductions. Usually a discrepancy in third-party documentation is the reason for a Correspondence Audit.
The next type of Audit is an “Office Audit”, when the taxpayer meets face-to-face with the I.R.S. and brings them documents that the I.R.S. requests. In these cases, it is highly suggested that the taxpayer recruit the help of a tax professional with expertise in audit processes. Their advice will guide you in providing appropriate information and supporting your argument. The last is a “Field or Home Audit”, when the I.R.S. visits you at your home or business for an audit. These are the most severe audits, and again, are best dealt with using a tax professional’s help.
A Illinois I.R.S. audit is a highly involved process that is not simple to navigate alone. Tax professionals know how to find information that will support your case that you may not know about, which will significantly increase your chances of a better outcome. Like in a chess match, skilled players are the ones with the best strategy and know their opponents’ next move. The help of a tax professional will help you beat the game.