When it comes to IRS audits, there are plenty of myths and misconceptions floating around. The complexity of the tax code and the IRS’s authority to enforce it often lead to misunderstandings. Believing these myths could cost you during an audit, so let’s debunk five common audit myths:
Myth 1: Audits only happen shortly after tax returns are filed.
False! While IRS audits for the most recent tax year do tend to ramp up a few months after the filing deadline, the IRS doesn’t just focus on your current tax return. The agency can go back up to three years to review past returns—and even further if fraud is suspected. This is why it’s crucial to keep your tax returns indefinitely and save supporting documents for at least three years for federal purposes.
Myth 2: If audited, all necessary records can be reconstructed.
False! Reconstructing tax records after the fact is difficult, and in some cases, impossible. Without a good filing system, tracking down receipts or documentation from three years ago can be a real challenge. If you can’t provide proof for a deduction or credit, you’ll have to negotiate with the IRS, often leading to a less favorable outcome. Having a solid record-keeping system in place now can save you from future headaches during an audit.
Myth 3: The IRS can only audit certain items.
False! Audits may start by focusing on a few specific items, but they can quickly expand based on what the IRS finds. Providing accurate documentation and answering questions clearly is essential to keep the audit scope as narrow as possible. A small issue can quickly turn into a broader audit if you’re not careful.
Myth 4: Only rich people get audited.
False! While high-income earners are more likely to be audited, taxpayers at both ends of the income spectrum can be subject to IRS scrutiny. No one is exempt from an audit, so it’s important for everyone to follow sound audit preparation practices, regardless of income level. Even with all the media attention on audits of wealthy individuals, anyone can be audited.
Myth 5: Going through an audit is a disaster.
False! Receiving an audit notice from the IRS can be unsettling, but it doesn’t have to be a stressful experience. With the help of a tax professional, you can navigate the audit process with confidence. We’ll review the audit notice together, develop a plan, and work to ensure the best possible outcome for your situation.
Now that we’ve cleared up some common misconceptions about IRS audits, let’s look at a practical tip to help keep you out of the audit spotlight altogether. One of the best ways to avoid unwanted attention from the IRS can be summed up in one simple word—Match.
A Great Tip to Stay Out of the Audit Spotlight
Imagine working for the IRS for a moment. How would you decide which tax returns to audit? The IRS uses an automated matching program that compares information on filed tax returns with data from other sources, like your employer, bank, or investment accounts. When there’s a mismatch, your return could be flagged for further review.
Knowing this, here are some tips to make sure the information on your tax return matches what the IRS has on file:
- Double-check name matches: If you’ve recently married or divorced, ensure the name on your tax return matches what’s on file with the Social Security Administration. You may need to use your former name until the change is processed.
- Keep a master list of tax forms: Make a list of who’s sending information about you to the IRS—your employer, bank, investment accounts, health insurance, and retirement accounts. Be sure your tax return matches the information they report.
- Correct before filing: If you spot errors on forms like your W-2s or 1099s, contact the provider to correct and resubmit the form before you file.
- Match first, correct second: If you must file with incorrect information that has already been sent to the IRS, first enter the incorrect data to avoid a mismatch flag. Then, correct it on your return and include an explanation. Save documentation to support your correction.
If you do receive a notice from the IRS about a mismatch, don’t panic. You can request a copy of the information they received and compare it to your records to pinpoint the issue. By taking these steps, you can reduce the chances of your return being flagged by the IRS’s matching system, and keep your tax filing smooth and audit-free.
Know What the IRS Knows About You
As we’ve discussed, one of the best ways to avoid getting flagged for an audit is to ensure that all your tax information matches what the IRS has on file. Mismatches can trigger unnecessary scrutiny, but by double-checking names, tax forms, and correcting errors before filing, you reduce your audit risk.
There are plenty of other reasons you might need to check your IRS records—whether it’s for a loan application, filing tax returns, or simply wanting copies of tax forms like W-2s and 1099s. Thanks to the IRS’s new online account function, getting access to this information is easier than ever.
How It Works
You can now use the IRS’s Get Transcripts function to retrieve your records online. First, you’ll need to register and verify your identity using the ID.me system, which involves submitting a government-issued ID and going through either an interview or an online verification process.
Once registered, you’ll have access to several useful features, including:
- Your account status and payment activity
- Copies of IRS notices and letters
- Tax records such as W-2s, 1099s, and transcripts of your 1040
Important Cautions
While the convenience of online access is great, it’s important to be cautious. Make sure you’re using a secure device on a private network and always access the IRS website directly—never through a link. Scammers often target taxpayers by offering “help” in setting up online accounts, so never share your login information or allow someone else to create the account for you.
If you’re hesitant to use the online service, don’t worry. You can still request your information by phone or mail, though the online method is much quicker for those comfortable with the technology.
Final Thoughts
Whether it’s staying out of the IRS audit spotlight by ensuring your tax return matches their records or setting up an online account to access your tax information, being proactive is key. Taking these steps will give you peace of mind and help ensure smooth interactions with the IRS. If you need assistance or have concerns, don’t hesitate to reach out for help. We’re here to guide you through the process and make sure you’re prepared for anything the IRS throws your way!
