The Anatomy of an Audit

ANATOMY OF AN AUDIT WE ONE The federal income tax was instituted in July of 1861 to help the government fight the Civil War. After patriotically paying our taxes we may dread the possibility of being audited. Do not fear! In actuality the odds are pretty slim. HOW MANY AUDITS ARE PERFORMED PER CALENDAR YEAR? 2009 2010 2011 Total Returns Filed Total Returns Filed Total Returns Filed E 138,949,670 142,823,105 E 140,837,499 Total Audits Conducted Total Audits Conducted Total Audits Conducted O 1,425,888 1,581,394 O 1,564,690 Percentage of Audits 1.03% Percentage of Audits 1.11% Percentage of Audits % 1.11% AUDIT RATES BY TAX FILING FOR 2010 Money recovered by the IRS through audits of Corporations with assets over $250 million: FOR INDIVIDUALS $28.6 BILLION CATEGORY # OF AUDITS 8.4% Earning over $1 million 32,494 Money recovered by the IRS through audits of all other companies: 2.7% Earning $200k -$1 million 120,481 $1.8 BILLION 1.1% All individuals 1,581,394 1% Earning under $200,000 1,428,419 FOR CORPORATIONS MONEY RECOVERED PER HOUR SPENT AUDITING: CATEGORY # OF AUDITS Large Companies [assets over $250 million] Small/Midsized 14.2% Assets over $10 million 10,207 Companies 0.9% Assets under $10 million 19,127 0.6% All businesses 58,067 S corps. and partnerships $9,354 $1,025 0.4% 28,733 TAX CODE The U.S. tax code, which includes all of the rules, regulations and various legal jargon that make up tax laws, is almost 4 million words long. TYPES OF AUDITS MAIL CORRESPONDENCE IN-PERSON EXAM THE MAIL AUDIT INTERVIEW AUDITS A letter from the IRS requesting an explanation or additional information and backup documents. On very rare occasions the taxpayer may be required to appear at an IRS office with receipts and backup documentation to support their tax report. Taxpayers may think they are being audited when they are receiving an "Automatic Adjustment Notice" THE FIELD AUDIT An IRS agent may come to the taxpayers home or business - this is the usual form for small businesses or business operated from home. THE CORRESPONDENCE AUDIT Usually requiring the taxpayer to provide information supporting a specific claim made on their tax report, or a check for unpaid taxes. 22% of those audited in 2010 were via in-person exam. 78% of those audited in 2010 were via mail correspondence. 9 SIGNS YOU ARE ABOUT TO GET AUDITED You made a lot less money last year. You lose or forget to file a form. You work for yourself. You claim losses from a hobby. It's illegal to pretend a hobby is a business and then write off the related expenses. A business "must be entered into and conducted with the reasonable expectation of making a profit.") You deducted home office (or car) expenses. This is commonly done incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction; the home office must be used for work only. You included expensive meals and entertainment costs among your deductions. You were particularly generous this year. The IRS looks for those who inflate their charitable donations. A closer look is taken at those taxpayers who say they donated $500 or just under, since anyone who donates more than that amount must file form 8283. You maintain an overseas bank account. Your numbers don't match. HOW LONG DO I HAVE TO KEEP MY PAPERWORK? Keep the paper copy of your federal tax returns (Form 1040 or 1040A, plus all attached Schedules and Forms) forever. This provides a permanent record of your financial history. 1040 In the 1900s it took the average American three weeks to make enough money to pay their Keep all other records (receipts and back-up documentation, state tax return for a full four years since the IRS and most state tax agencies have three years from the due date or the filing date to RECEIPT state and federal taxes. audit or revise that return. 45% Today it takes at least until April - four months. of U.S. households did not owe any income taxes in 2010. Most of the no-tax households paid other taxes, such as state and local income taxes, along with property and sales taxes, as well as FICA payroll taxes for Social Security and Medicare on the federal level. SOURCES: http://www.irs.gov/ via http://www.huffingtonpost.com/2012/03/23/irs-tax-audit-tax-day_n_1374790.html http://turbotax.intuit.com/ via http://www.huffingtonpost.com/2012/03/23/irs-tax-audit-tax-day_n_1374790.html http://money.usnews.com/money/blogs/alpha-consumer/2012/03/07/9-warning-signs-youre-about-to-get-audited http://money.msn.com/tax-tips/post.aspx?post=183779b5-d36d-4248-b96e-ce4ac8522dfe&_blg=3 http://www.mainstreet.com/article/moneyinvesting/taxes/tax-tip-how-long-keep-copy-your-tax-records?cm_ven=msmsnp http://money.msn.com/tax-tips/post.aspx?post=292d620a-6459-4381-a22b-f3b59dc64ff8 https://blog.shoeboxed.com/10-fun-facts-about-taxes/8128/ http://facts.randomhistory.com/tax-facts.html Presented by BestOnlineAccountingDegree.org Created by OBizMedia