Do State And Federal Governments Both Conduct Audits?
Both state and federal governments conduct audits. The IRS obviously handles all federal income tax audits, and the California Franchise Tax Board handles state income tax audits. Sales tax audits are also common in California, and those are handled by the Board of Equalization. The final type of state tax audit is an employment tax audit, which concerns worker classification issues. These are handled by the California State Employment and Development Department.
Is There Any Way To Avoid An Audit?
The best way to avoid an audit is to hire a good CPA or accountant to prepare your tax returns. There are some limited circumstances in which you can try to get out of the audit. You can request the IRS to survey or close out your audit without actually being audited. This is something that the IRS will sometimes agree to if you are active duty military. In certain circumstances, an experienced tax attorney may be able to persuade the IRS to close out the audit if the person who is being audited is suffering from severe medical conditions.
How Do I Know If I Am Going To Be Audited?
The IRS will send a certified letter to your last known address to verify or to notify you of the audit. This will happen regardless of whether it’s a correspondence audit, an office audit or a field audit. In rare cases, the Criminal Investigation Division will visit you before you receive a letter. Since the majority of notifications are received through the mail, it is very important to update your address whenever you move. This is because the IRS only has to show that they mailed the notice to your last address on record. Unfortunately, I have seen many individuals receive an IRS collection letter because they failed to update their address and therefore did not receive the notice in the mail.
What Is The Process Through Which An Audit Is Conducted?
The audit process varies depending on the issues being audited and the type of audit. In a correspondence audit, the IRS will send you a letter or request that you submit documents to them by a certain due date. Once you mail in the documents, the IRS will take eight to 12 weeks to review them. They will then submit an audit report of their findings. Once you receive the audit report, you will have another opportunity to respond to the audit report. If no agreement can be reached, then the IRS will send out a notice of deficiency, which allows you 90 days to file a petition with the US Tax Court to dispute the notice.
In an office or field audit, the IRS will either come to your business or home, or you’ll go to their office. They will review the documents that you bring and also provide you with an examination report.
You can then work with the assigned tax compliance officer or IRS revenue agent to provide or dispute additional items. If the case and issues are agreed to, then the IRS will ask you to sign an examination report, which will close out the IRS audit. If it’s not agreed to, then you can do an IRS administrative appeal and your case will be forwarded to the IRS appeals office. If you do not request an appeal but do not sign off agreeing to the examination report, then the IRS will again issue a notice of deficiency, which gives you 90 days to file a petition with the US Tax Court. If the 90 days pass and you do not file a petition, then the IRS assesses the balance and you can no longer dispute the issue except through the limited audit reconsideration process. Your case will then be forwarded to the IRS collection division so that they can attempt to collect the debt.
How Long Does The Entire Audit Process Generally Take?
If it is an office audit and the IRS is happy with the documentation, then it can take just a few days. It can also take several years depending on the issue and the taxes involved. It could involve the IRS issuing subpoenas or document requests to third parties. If a case goes to appeals or to US Tax Court, then it could easily take six or seven years for an audit to get results. So, it can take anywhere from a few days to several years.
For more information on State & Federal Tax Audits, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 321-3369 today.
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