1040 Audit – Important Things Expats Need To Know About The Dreaded IRS Audit

1040 Audit – Be Prepared For Your IRS Audit

Sooner or later, some of us personally receive or know of someone who has received a dreaded letter from the IRS. Sometimes it says that you have been chosen for a 1040 audit. What shall you do?

After you get over the initial shock and panic, it’s important to keep in mind that just because you have been selected for a 1040 audit, it doesn’t necessarily mean that there is something wrong with your tax return. An IRS audit is a review/examination of your IRS return to ensure information is being reported correctly, according to the tax laws, and to verify that the amount of tax reported is accurate.

1040 Audit Selection

Tax returns are selected for examination using a variety of methods, including:

1. Random selection and computer screening – sometimes returns are selected based solely on a statistical formula. When returns are filed, they are compared against “norms” for similar returns. The “norms” are developed from audits of a statistically valid random sample of returns. These returns are selected as part of the National Research Program, which the IRS conducts to update return selection information.
2. Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported, generally a correspondence audit is initiated in the form of a CP2000 notice.
3. Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

1040 Audit Methods

In general there are three types of tax audits:

1. Correspondence Audits: Some audits are conducted entirely by mail. If the audit is conducted by mail, you will receive a letter from the IRS asking for additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. The most common of which is the receipt of a CP2000 letter which is where the IRS has identified that the income and/or payment information they have on file doesn’t match the information you reported on your tax return.
2. Office Audits: This type of tax audit is conducted at an IRS office and generally will focus on specific areas of the return and most commonly on substantiating travel, meal and entertainment expenses along with automobile expenses.
3. Field Audits: A field tax audit is generally the most detailed audit and conducted by the most experienced IRS examiners, known as Revenue Agents. They are usually conducted by the auditor at your place of business or home.

The IRS will determine the type of tax audit based on the complexity of the return and the issues identified by the IRS. Oftentimes, the IRS will have more information at their disposal than you and certainly more knowledge of the tax code.

While the IRS will tell you what records are needed in the form of requested information, It is important to protect your rights before proceeding to respond to the 1040 audit. Before responding to the 1040 audit or tax audit, whether Tax Samaritan is representing you or you are self-representing, it is important that you collect all details and information needed to effectively respond to the audit.

Corroboration in the form of documents and proof to what has been claimed and reported on your return is integral to challenging any areas of the tax exam that are in dispute. Of course, all is for naught if what was reported or claimed is not in line with the tax code. The blending of both of these areas and the knowledge of what is needed to dispute the findings of the 1040 audit is where professional audit representation is of value.

You Have The Right To Audit Representation

All taxpayers have a right to audit representation and the IRS is required to immediately cease direct communications with you once and communicate strictly with your representative once you have tax representation.

During the 1040 audit, Tax Samaritan will keep you, the taxpayer, apprised of the status of your case. From the get go, we will preliminarily research and analyze your case to determine your strong and weak points so that we can vigorously defend your interests and determine recommended next steps.

Enforcement is back in force at the IRS after years of declining audits and an ever-increasing tax gap and budget deficit. If you have received a 1040 audit notice or examination notice, there is little that you can do to stop it. However, you can take action by contacting the tax experts at Tax Samaritan and request a free 30-minute consultation to discuss your options. Please click on the button below to get started with the resolution of your IRS audit problems.

Please click here to read more about our IRS tax audit representation services.

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.