We often hear from some taxpayers that e-filing a return is not a good idea because you are nourishing the IRS with all your tax data, and makes it very easy for the agency to carry out an audit on your return. The logic is very clear and simple, when you are e-filing your tax return, you only submit your income tax data to the Internal Revenue Service (IRS) using their software and letting them quickly scrutinize your return for averages, statistics, deviations from IRS rules and guidelines (i.e. for instance high donation expenditures with less than average income) hence making it easier for the IRS to review your return first.
If you are not in support of that methodology, then you may prefer mailing your hard copy tax return to the Internal Revenue Service needing them to open the return, physically key in all the information and only then scrutinize the return, looking for irregular activities. Reporting your income, credits and deductions to the IRS and the state is obligatory by law, but also note that the law doesn’t "force" you to actually make it easy for the IRS to review your tax return.
But is that actually the case? Does e-filing your tax return really mean you are more likely to be audited by the IRS? Taxpayers that are opposed to e-filing system strongly believe that the way you use to file your tax return does not influence the audit selection process as this unique process is carried out after all the data is entered irrespective of the way it was submitted (mailed in or e-file).Most of the e-file supporters think that the IRS selects tax returns for audit or scrutiny based on examination of your income, credits as they appear on your tax return, hence "making it very easy" for the IRS to process a tax return does not necessarily upsurge the audit risk. Taking it further, there are those claiming that e-filing actually lessens your audit risk, because the e-filing process greatly reduced errors in filing. When using e-file system, a taxpayer undergoes the check and balances of the software right before submitting the tax return, whilst mailing hard copy does not really go through that same process. The internal revenue service (IRS) says that e-filed returns have 1% errors versus about 20% errors in non-efiled tax returns. Making sense? Maybe.
The IRS does not actually release audit information that shed light on the issue at hand. It is not a secret that the IRS aggressively pushes the e-file program trying to make sure that more and more people use it. But we all know that the e-filing method is in our future. The main question is, whether you should actually adopt the e-filing system today or just wait until it becomes obligatory.
The internal revenue service (IRS) "encourages" taxpayers to use the e-file method with incentives like no-preparation-fee for taxpayers who meet particular criteria, quick refund (about 10 days with direct deposit) and finally more accuracy which in turn leads to fewer penalties for erroneous reporting. Bottom line, be sure that you will have to electronically file your return sometime in the near future. For those who have simple returns and use forms 1040EZ or 1040A you are more probable to begin e-filing sooner than later as audit does not actually worry you with your really simple tax filing. You have to note that the more complex your return is, the more likely you will be a "late adopter" of the e-file method, expecting that you are less exposed to internal revenue systems (IRS) audit by submitting your tax return using hard copy and not e-mail.
As a professional, I totally understand that online taxes should be rather simple, easy, and fast and maybe, just maybe even fun. And because of the, I have developed a completely unique approach to online tax preparation which actually takes the tension and hassle off the table. I have considered a REAL-LIFE-EVENTS solution which doesn’t bore you with scary forms and endless questions, but instead, ask you to very simply tell us: "what exactly happened to you this year"? And all you have to do is open up to us (or select from our event list) what exactly happened to you, and we will in turn provide you with vital information that will greatly help you to better understand where, what and when to report. I will also suggest to you how you can save on taxes based on all the events that you went through this year and possibly advice you on how to ensure that maximize your refund in light of all those events.
So you are Under Audit...What Next?
Once the Internal Revenue Service has begun the audit, you have very limited options. If you do not have the right documentation to refute the changes they have proposed, you can then only let the audit happen and start negotiations right after the balance is evaluated. But if you feel the audit is unfounded or that you can verify the validity of the original data now being in question, you can immediately get in touch with your auditor. It is advisable to get experienced representation, as wrongly presented details can be very harmful.
If no resolve can be met with your auditor, as a taxpayer you can decide to either contact the Taxpayer Advocate's Office or bring it up with the auditor's supervisor.
But what are your Rights under an IRS Audit?
The IRS (internal revenue service) notify you that you are being audited. Any banks, friends, neighbors, family, or even coworkers contacted during this exam must be revealed. You actually have every right to see this list.
For any financial information they request, it is your right to know the main purpose and how it will be used. It is important that this data is also discrete and professionally dealt with. If in any case you feel your audit was not handled with professionalism, you can simply get in touch with the office's supervisor or even the District Director.
To get more concrete advice about this, you need to find a tax professional who will walk you through and offer you the much needed help. With years of experience as a tax preparer and accountant you can be sure of not only personalized assistance but advice based on facts. Contact me today and get your face share of the truth.
Kevin J May CPA