The birds chirp and the sun bathes your skin as you walk to your mailbox. The day couldn’t be more beautiful. However, your day quickly takes a dark turn when you see a letter from the Internal Revenue Service (IRS). After opening the letter, you discover that you have been chosen for an IRS audit. “Why me,” you ask yourself. Based on tax audit reviews, you could be selected for a number of reasons. This article, Part 1 of a three-part series on IRS audits, will give you an idea as to why the IRS may have targeted you for a tax audit.
Just because you’ve been chosen to be audited by the IRS doesn’t automatically mean that you are in trouble. That’s because the IRS may have randomly chosen you for an audit based on a formula. The IRS compares people’s tax returns against the norms for other similar returns. These norms are developed based on audits of returns in the agency’s research program, which the IRS utilizes to update information regarding the selection of returns.
Another reason why the IRS may have decided to audit you? Your tax return might involve transactions or issues with other people whose tax returns were chosen to be audited. These other taxpayers may include investors or business partners, for example.
Once a seasoned auditor reviews your return, he or she will approve it or forward it to a group that will examine it further if he or she sees something questionable.
Keep in mind that if you file a tax return that has been amended, this will not impact the process of selecting your original return for an audit. Still, an amended tax return, like your original return, will also be screened and might be chosen for a tax audit.
Also, note that just because you receive a tax refund doesn’t mean you are more likely to be audited.
In Part 2 of this series on IRS audits, we will discuss in detail how the IRS conducts audits.