By Luna Erik
A tax audit of tax returns is an examination of your tax return by an IRS agent. The auditor will review your records and determine whether or not there are mistakes. He or she will also explain any proposed changes. You will be informed of your rights and options regarding the audit, including the right to appeal. If you are a business owner, tax audits may be necessary to prevent tax fraud.
4 reasons why tax audits important for businesses
- They help prevent fraud and ensure that businesses are playing by the rules.
- They allow the IRS to assess taxes more accurately, which in turn helps them collect more money overall.
- They can be used as leverage in negotiations with the IRS if you find yourself in a dispute over a tax bill or assessment.
- They can help you identify areas where you need to improve your compliance practices and processes so that you don’t have any future problems with the IRS (or other government agencies).
In some cases, you may be asked to submit additional documentation to support your claims. This could include canceled checks, employment documents, shareholder reports, or ticket stubs. If you disagree with the IRS’s findings, you can ask for a conference with a manager or file an appeal.
In most cases, the IRS selects tax returns for audits based on statistical data. These statistics compare the taxpayer’s return to “norms” for returns with similar characteristics. If the taxpayer’s return is significantly different from these norms, the agency may choose to investigate it. This may be necessary if the return involved transactions or issues with other taxpayers. However, less than half of all individual tax returns are audited.
The Internal Revenue Service has the authority to investigate tax returns not only from the most recent three years but also from more than ten years back. Even while the IRS can audit tax returns that are more than three years old, the majority of audits concentrate on the most recent two years of filings. However, if there are significant problems on older tax returns, the IRS may also audit those returns.
