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What factors could lead to an audit by the IRS?

On Behalf of | Jan 7, 2022 | Tax Audits

Even if you pay your taxes on time and do your due diligence in the provision of accurate and up-to-date information to the Internal Revenue Service, you could still receive notice of an audit. The IRS conducts audits in certain circumstances, particularly if there is suspicion of failure to pay taxes or other issues. Receiving notice of an audit can be intimidating and overwhelming for a Georgia adult, and you may be unsure of what to do next.

There are specific things you can do to defend your interests in the event you are facing an audit. While this process can be intimidating, it is possible to fight for a reasonable outcome to any type of tax dispute. After an audit, an administrative appeal may be appropriate. The ideal response to notice of an audit or the negative outcome of an audit depends on the details of your individual situation and your objectives.

Common reasons for audits

The IRS typically initiates an audit when there is a discrepancy between what they should receive and what an individual or business paid. There are times when an audit is random or the result of some type of mistake. Common reasons for the IRS to initiate an audit include:

  • Failure to report some income, including cash received for side projects done in addition to regular employment
  • Math errors that happen during the completion of the tax return
  • Claiming a home office deduction or claiming too many charitable donation deductions
  • Using too many round or neat numbers when making calculations on the tax returns
  • Deducting too many business expenses or losses

If an audit finds there is a tax gap, the individual or taxpayer will be responsible for paying the difference. It is also possible you could be subject to various penalties, which is why an effective and prompt defense to an audit is critical for your future interests.

Relief options during an audit

There are a few different approaches one may take during an audit. An offer in compromise is a possible option, as is the possibility of paying back taxes and penalties in installments. There are additional ways you may be able to mitigate some of the possible consequences of an audit, as well as protect yourself from additional legal and financial complications. You would be wise to begin developing a strategy with which you can confront an audit as soon as you receive notice from the IRS.