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IRS Audits.

W

Wedesdo

Platinum Member
How do they select who to audit? Do they just randomly pick names out of a bax?

Also, what is the process of actually being audited like? How time-consuming is it, and how much will it cost an average?

Finally, when should one expect to know if they'll be audited for a specific year?

Thanks in advance.
 
it is random... i used to remember the percentage... but it is a certain percentage of people that file... if things don't look out of the ordinary your chances of being audited are very slim.
 
Dan: the questions are at the top. the main ones are :

what is the process of actually being audited like? How time-consuming is it, and how much will it cost an average?

Finally, when should one expect to know if they'll be audited for a specific year?
 
There are certain "red flags" that can trigger an audit. For example, operating a home-based business, being self-employed, deducting high amounts for charitable contributions, entertainment expenses, etc.

When the IRS sends you THE LETTER informing you that you are being auditted it tells you the year/s in question. You will also be informed of which specific areas of your return are being questioned.

The amount of time an audit takes and the amount of penalties assessed will vary from one person to the next. As I said, I've undergone two audits. One lasted 4 hours, the other was nearly 6 hours. The first one only cost about $300. The second was more like $1500.

I'm fortunate in that my wife has a background as an accountant, used to moonlight for H&R Block and is a paralegal. (She prepares our taxes.) For each audit she was totally prepared and we just buried the auditor in paperwork. (My wife has a paper trail for everything.)

Three hours into our first audit it began to look like the IRS might wind up owing us money if we kept going. The auditor suddenly offered a lowball figure to settle and we took it. (Just so we could get the hell out of there.) The second one was more complicated and the auditor kept really drilling us on deductions related to our home-based business. She disallowed all the deductions for educational materials and training that we had been taking for years. Again, we reached a settlement and set up a payment plan to handle that one.

Hope this info helps.
 
Been through a nasty one.
Was a self Employed S/w consultant - $30K Gross Income from contracts.
IRS had a non-computer literate go over paperwork and she threw out everything when I pointed out an error in her logic (black and white in tax code - in my favor).
Wanted to have total bill comeout to $46K

Filed an appeal and then the auditor went after following year. Claimed that 18 year boy going to local community college (on full scholarship) was not a dependent.

I blew up and sent a letter to head of South Fla IRS office, showing a copy of birth certificate, his scholarship paperwork, and prev semester grade report. Showed that the agent was being biased.

Got a new agent which did not know computers either, but had no axe to grind.
We spent over 8 months going over returns from two years in 2 hours blocks about every week, explaining why things were done and showing a paper trail and/or common sense.

At end I owed $300+ for 1993 and IRS owed me $419 for 1994.

Got a $4K contract from her husband to set up a computer system for his business though.

In summary:
Have all paperwork available.
Do not attempt to bullS*it them. they can smell it.
If you feel that a deliberate shaft is coming, go over their head with supporting documentation to justify your complaint.
 
EagleKeeper: My experiences were a walk in the park compared to yours! You gave some excellent advise.
 
In the last 11 years, I've been audited three times. The first two were "red flag" audits as Dan mentioned above (I'm self-employed). In both cases, they had specific areas that they questioned and I simply mailed in the documentation. No changes.

The third was a random "compliance" audit. They select a sample of taxpayers each year for these. These are the ones that they use to develop their computer models for red flagging returns. They are NOT fun.

This one examined every single area of my return for that year, right down to the penny. Took two full 8 hour days at their main office in Seattle. In the end, no change (I'm a fanatical record keeper).

Russ, NCNE
 
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