Whatever the reason, the federal government is stepping up income tax audits.
The good news — and bad news — is that audits are increasingly being completed by correspondence, said Gary Iskowitz, a Los Angeles certified public accountant who serves on the IRS’ Tax Advocate panel.
“Over 80% of the audits are going to be conducted by correspondence exam,” Iskowitz said. “They’re far less time-consuming, which means the IRS can audit more people. But if you’re not careful, they can become a paper nightmare.”
What do you need to know about today’s tax audits?
Most audits are targeted: The IRS has largely abandoned the old (and much-maligned) line-by-line audits of yesteryear. The agency is much more likely to focus on a single area or two that appears to be a hotbed of cheating, such as auto donations. With a targeted audit, you’re likely to be asked to provide more information about just a few items on your tax return.
If you have the documentation that clearly shows your deduction was legitimate, you may be able to handle the audit by simply making a copy of your records and mailing them in. Make sure to answer promptly and send your information via certified mail, requesting a return receipt, Iskowitz said.
Quicker challenges: If the agent who reviews your correspondence audit doesn’t like what he or she sees, you could be on your way to tax court. With in-person audits, there are a variety of appeals before a formal challenge.
