Avoiding an IRS Tax Audit

Incidence of Audits and How to Avoid Them

The thought of a tax audit terrifies most taxpayers. Even the mention of the IRS can evoke strong emotions from people suspecting that an IRS auditor is there to increase their tax liability rather than give an accurate assessment of their taxes.<br><br>According to the IRS, the total number of audited individual tax returns increased by 7 percent to 1,384,563 in 2007 from 1,293,681 in 2006. That’s the highest number since 1998. Good tax record keeping is important in the event that you are selected for an audit . Remember to print off (either as a hard copy or PDF file) your 2008 tax return and keep a copy for your records. On efile.com you can print your return free of charge until December 2009. After that we will close to prepare for the new tax season.<br><br>Tax returns are chosen for an audit by computer programs that calculate which tax returns are most likely to be in error. The auditor then approaches the taxpayer and conducts a line by line analysis of their personal finances.<br><br>The IRS has averaged a little bit higher than a 1% audit rate of all individual tax returns. That means that the IRS audits one or two out of every 100 tax returns. Other flags that might trigger an IRS audit include a high amount of deductions compared to income, tax items that are erroneous, or failing to include proper proof or explanation for major one time losses.<br><br>There are many preventative steps that can be taken to avoid a tax audit. If you are already in the process of a tax audit, there are things that you can do to expedite the process and incur minimum unfavorable adjustment to your tax obligation. The most essential thing to do to avoid an audit is to keep good records. Good records allow you to easily organize and accurately calculate your tax return. Good records also supply the physical proof for out of the ordinary deductions. If you are already in the midst of an audit, absolute compliance is the best way to help your situation. Making things easier for the auditor shows that you have nothing to hide and that you want to get the process over as soon as possible.<br><br>If you efiled your previous year tax return on efile.com you will be able to import this data into your new tax return. For example, during tax season 2009, you will be able to import 2007 tax return data into your new 2008 tax return. It is in your personal interest and it is very helpful to have last years' return available when you start to prepare your 2008 return. It is also important to have past year’s copies of your tax returns in case there are any questions or if you need to provide documentation for schools, banks, etc.<br><br>If you did NOT file or efile your tax return on efile.com or you need an old tax return, you can contact the IRS to get a copy of a tax return or a transcript of the return.<br><br>Tax Return Transcripts provide taxpayers with a computer-created record of their tax return which includes most of the line-items as filed with the IRS, including any accompanying forms and schedules. The transcript does not reflect any changes the taxpayer, his/her representative, or the IRS made after the return was filed. To obtain a tax transcript, either call 800-829-1040 or complete and mail Form 4506-T to the address listed on the form. You can have the tax transcripts mailed to a third party if you specify this on Form 4506-T; consent for the disclosue and your signature are required. The tax transcript is free.<br><br>For the actual copy of an IRS accepted tax return, you will need to complete and mail Form 4506. Please include a $ 57.00 check made payable to "U.S. Treasury".<br><br>If you are chosen for an audit and the auditor determines an increase in your tax liability, you are entitled to an appeal. The IRS will send you a letter that explains the proposed adjustments to your tax return. The letter will also inform you of your right to meet with an appeal’s officer and how to contact said officer. You must bring supporting documentation to your appeals conference with an Appeal’s officer.

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