One word that can make taxpayers cringe is “audit.” Fortunately, chances are slim that you’ll experience an audit: In 2011, the IRS audited just over 1.5% of returns. However, certain triggers can boost the likelihood that your return is among those targeted.
There are several red flags that can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return.
In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things are more likely to increase the likelihood of an audit, such as a traditionally cash-oriented business, tax shelters or a home office deduction.
One of the biggest factors in determining the likelihood of an audit, in fact, is your income. For instance, according to IRS statistics, if your adjusted gross income topped $1 million, your return had an 8.4% chance of being audited in 2010 and increased to 12.5% in 2011.
Finally, some returns are chosen as part of the IRS’s National Research Program. Through this program, the IRS studies returns to improve and update its audit selection techniques.
If you receive an audit notice, read it carefully. Most will indicate the items to be examined, as well as a deadline for responding. A timely response conveys that you’re organized, and thus less likely to overlook important details. It also indicates that you didn’t need to spend time pulling together a story.
Do you need help with you IRS Audit?
Karel Valdez of Pinnacle Tax Service Inc. has a very specific designation for your audit needs. She is an Enrolled Agent.
An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual or business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.
Let Karel guide you through your audit and be confident that she will be there with you every step of the way.