When the words “IRS auditor” are mentioned, so many people conjure up an image of an individual sitting amongst stacks of paperwork with intense scrutiny and big red AUDIT stamps. While audits can be nerve-wracking, understanding the role of an IRS auditor can help put your mind at ease about the process and provide clarity on what to expect if your San Francisco business faces an IRS audit. Let’s look at what an IRS auditor does and how you can navigate the audit process with confidence.
An IRS audit is a review of an individual’s or a business’ accounts and financial information that was reported to the IRS. This is done to ensure the information is reported correctly according to the tax laws and to verify the reported amount of tax is correct. Just because your business was notified of being audited does not necessarily mean there’s a problem. There are several things that trigger an IRS audit. However, the two main ones are random selection/computer screening and related examinations.
Sometimes returns are selected based solely on a statistical formula. That’s called a random selection and computer screening. The IRS compares your tax return against other similar returns. Related examinations happen when the IRS selects your returns because they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
Once the IRS selects your return for audit, an experienced auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examination group.
An IRS auditor is a professional that is employed by the Internal Revenue Service (IRS) to review tax returns for accuracy and compliance with tax laws. Their goal is to ensure that individuals and businesses are reporting their income and expenses accurately and paying the correct amount of taxes. Whether your audit is in-person or by mail, the auditor is responsible for the following tasks.
Reviewing Tax Returns — The IRS auditor will examine tax returns to verify that all income, deductions and credits are reported correctly. They look for discrepancies, errors or signs of fraudulent activity.
Conducting Interviews — The auditor may also interview taxpayers or their representatives to gather more information about the return in question. These interviews can help clarify inconsistencies or provide additional context for certain deductions or credits.
Examining Financial Records — Auditors will review supporting documentation such as receipts, bank statements and financial records. They review these documents to ensure that the figures reported on the tax return match the taxpayer’s actual financial situation.
Assessing Compliance — An auditor also ensures that taxpayers comply with tax laws. This includes checking for proper documentation, correct reporting of income, and adherence to tax credits and deductions rules.
Issuing Findings and Recommendations — Once the audit is complete, the IRS auditor will issue their findings. This may include adjustments to the tax return, recommendations for changes in future filings, or in some cases, assessments of penalties or additional taxes owed.
Despite the negative connotation that comes with the idea of an IRS audit, the auditor is simply following protocol and is not against the taxpayer or business owner. They work impartially to examine records and issue the correct findings. If you find yourself or your business facing an IRS audit, be sure to work with an experienced tax attorney or professional. That individual can work with the auditor on your behalf.
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.
