If you are tapped for an Internal Revenue Service (IRS) civil audit, your mind may suddenly lurch to the ten boxes of documents you shredded while cleaning house during the pandemic lockdown. Barring that, if you do draw the interest of the Internal Revenue Service, it is a good idea to know what kinds of records you should retain, and for how long.
If you got a letter from the IRS notifying you of an audit, you are not alone. There are many reasons you could have been selected for an audit. Your return may have come up in a statistical churn that is looking for nothing but a representative random sample. As well, if your return is related through transaction, or other means, with other taxpayers who are being audited, you may be pulled in. If you had an irregularity, or erroneous information in your return, your return could have been flagged as well.
During the COVID pandemic, fewer people and businesses went through the audit process. Even today, audit numbers are likely down. In the past, civil audits were in-person and via mail. During 2020, many regional offices were closed. Numbers may have picked up, but there is a good chance that most audits are conducted through correspondence examination. This means you would mail your documentation to the IRS for their review.
What kind of documents are needed for an IRS audit?
During an audit, the IRS wants to look at copies of documents that support your tax returns. The IRS can review your tax returns for the last three years. If there are errors, or potential evidence of tax fraud, the IRS can request additional returns and additional documents.
For civil or criminal tax audits, the IRS may request:
- Bills, receipts, transportation tickets, cancelled checks: These documents are a mainstay of support for a tax return.
- Legal and loan documents: Documents such as a Divorce Decree, tax reports or summaries, civil or criminal defense records, and loan and mortgage papers are important to include.
- Medical and dental records: Records related to medical treatments, payments, and improvements made due to medical reasons should be carefully organized.
- Employment records: Documents that relate to your employment should include your W-2, benefits, reimbursement, and other records.
It is to your advantage to carefully review and organize your documents prior to sending them to the IRS. If you believe (or know) there is tax liability hidden in your records, speak with a good tax attorney before you submit your records. Be sure the records provided to the IRS are batched by type and year, and provide a summary of what you are sending.
There are other steps to an IRS audit. You may be asked to fill out a questionnaire or provide other kinds of documentation. In the end, the IRS will present you with its findings. The findings may suggest no changes, or may suggest changes to your returns with which you may agree or disagree.
Not surprisingly, there is no set amount of time by which an audit by the IRS must be complete. The more complete and accurate your returns and records—the better off you will be.
Are you facing a tax controversy? Speak with a skilled tax lawyer today
Serving local and international clients from offices in Chicago and Cleveland, our experienced tax lawyers at Robert J. Fedor, Esq., LLC help you respond strategically to questions about audits, offshore tax investment or allegations of tax crime. Call 800-579-0997 or contact us today.