IRS Audit Myths Debunked
I can’t tell you how many times I received phone calls from clients who are worried about the IRS in one way or another. More often than not, these taxpayers and San Francisco business owners are worried about common IRS audit myths that can be easily debunked. In this post, I’ll clear up some common myths and misconceptions about IRS audits in California.
Myth: You should be scared of an IRS audit.
Fact: The fact is that IRS audits are very common and are not something that necessarily should be feared. There are two types of audits: the correspondence audit and in-person audit. The correspondence audit is very common and most people may not realize it’s an actual audit. It’s essentially a letter or notice from the IRS that requires a few answers to questions. Oftentimes, that’s just verification of information. For an in-person audit, the IRS agent will request an appointment with you to review certain financial information. If you find yourself facing an in-person audit, don’t hesitate to speak with an experienced San Francisco tax attorney.
Myth: You will have to meet with an IRS agent if you are audited.
Fact: Generally, IRS audits are triggered by missing information on tax returns. This could be wages, interest or 1099 income that’s not reported. For example, if the IRS receives a copy of your W-2 or 1099 that you did not report as income on your tax return, that discrepancy may trigger an audit. Again, this may simply mean you receive a correspondence audit questionnaire and you may never even speak to an actual IRS agent.
Myth: Taxpayers with low to moderate incomes do not get audited.
Fact: Generally, the IRS is not looking at income level with audits. There are other triggers for audits, including a large number of exemptions, continually making zero profit for an independent business, or not reporting income. The IRS does not discriminate when it comes to audits.
Myth: Filing for certain deductions or credits increases the chance of an audit.
Fact: The IRS expects you to take deductions and is generally not scrutinizing every one of your deductions with a fine toothed comb. However, making very large charitable donations can sometimes raise a flag to the IRS. The IRS will look to see if your donations are disproportionately large compared with your income. You also need to make sure you file the IRS Form 8283 if you’ve made a non-cash donation of more than $500. This is common with vehicle donations or art.
Myth: Audits are done immediately
Fact: The IRS has a statute of limitations of three years after the due date of the return. Generally, an audit will occur in the latter half of that time frame.
It’s very common to fear IRS audits and believe the myths that are commonly told about them. But before you get too worried about how it may affect you as a taxpayer or business owner, consult an experienced San Francisco tax attorney or professional. We can always tell you the difference between fact and fiction.
Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego.
