Tips and advice on how to avoid getting audited by the Internal Revenue Service (IRS) abound. But why bother? Does it really matter if you get an IRS agent knocking on your door or a mailing from the agency stating that they are going to conduct a review of your returns?
Ultimately, the answer is yes — it really matters. This finding is supported by data released by the IRS that explains exactly what happens when the agency conducts an audit.
How many investigations were conducted in 2016? According to recent statistics released by the agency, there were 1.2 million tax return audits conducted in 2016. Of these audits, the rate of audits of corporate tax returns almost doubled that of individual returns.
How does the IRS conduct an audit? An examination of a tax return is generally completed in one of two ways. The agency will either contact the audited individual or business through a mailing or a personal visit. The vast majority, at 70.7 percent, are conducted through the use of mailings.
What were the results of the audits? Very few audits did not lead to a change in the tax payer’s tax obligation. Only 8 percent of individual taxpayer audits and 11 percent of corporate audits were given the finding of “examined with no change” recommended.
The remaining audits resulted in almost $27 million in tax bills to audited individuals and businesses.
How does this tax debt break down? Of the individual tax returns, the average recommended tax obligation was $18,977 for investigations that were conducted by an IRS agent in person and $6,622 for those conducted via correspondence. For corporate income tax returns, field investigations led to an average $761,033 tax bill and correspondence resulted in an average $28,610 owed.
What if there is a disagreement about the results of the audit? This is not uncommon. The report by the IRS notes that over 29,000 of those audited disagreed with the agency’s findings. Those who find themselves in this situation are wise to seek legal counsel. An experienced tax attorney can review the tax audit and provide guidance on how to dispute the finding, better ensuring your dispute will find success.