IRS Audit Knockout-Round 1 of Audit Questions

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IRS Audit Knockout-Round 1 of Audit Questions

 

We often get calls from people being audited by the IRS. They don’t know what to do, what the audit process looks like, or what questions the IRS will ask.

 

This is a 3-part series. We will break down the actual questions that the IRS auditor asks during an audit.

 

Essential fact: These questions have a dual purpose. Of course, when the auditor asks the question, they want to know the actual answer.

 

However, there’s also either a procedural purpose or an analytic purpose for every question. And that’s why how you answer every question is important.

 

Question # 1 – Name, DOB, Address, and Filing Status

 

The IRS already has that information because they have a copy of your tax return. So why do they ask the question?

 

First,  they want to confirm they are speaking to the right person. They are confirming your identity. They also want to learn whether you use any aliases. Do you maybe have someone else in your household that was not included on your tax return?

 

They are probing a little. This basic information will later be used to analyze your dependents and income sources. This is an example of an IRS analytic purpose.

 

Question # 2 – Do You Have a Spouse? What is Your Spouse’s Name?

 

The auditor asks this for the same reasons as question # 1. When you are under audit, the IRS will look at your spouse’s return to see if that one also needs to be audited.

 

Also, they check for the proper identification with your social security number to ensure you are a legally documented citizen or resident.   This is an example of an IRS procedural purpose.

 

Question # 3-Who Owns or Controls Your Residence?

 

The government wants to know whether you rent or own your home. But they are also trying to  learn additional information. For example: whether you have rental properties or rental income?

 

This is an analytic question. Ultimately, the auditor is trying to determine whether your lifestyle fits your income.

 

That will be a recurring theme during the audit — whether your lifestyle fits your reported income. Your home and whoever occupies that home is part of your lifestyle. For example, say you live in a million-dollar home. You pay a mortgage loan, but only reported $23,000 income. That income-to-expense comparison is the type of analysis the auditor makes.

 

Question # 4-Who is Your Employer?

 

If you are self-employed, they will ask you to discuss your business. Again, the auditor wants to confirm the information on the tax return, but also confirm current income sources.

 

Why? They want to confirm income sources that at a later date can be used to pay the tax after your audit. They are actually looking for ways to collect on taxes after the audit is completed.

 

Question # 5-Have You Filed Any Amended Returns in the Past?

 

You may think that the IRS auditor should be aware of whether you filed amended returns, right?

 

What the IRS is actually doing is checking to see if you have a habit of changing the answers or final numbers on your tax return after it’s been filed.

 

Someone’s filing multiple amended returns could show a history of manipulating the tax system. They’re also checking to ensure that no amended returns would affect your answers on the current year being audited.

 

Question # 6-Are You Aware of Any Errors on Your Tax Return?

 

This is kind of a trick question.   Most people simply say “no”. However, some people say “yes” and then provide a flood of information—all triggered by that one question. Some people see it as a time to “come clean”.

 

Your response to this question can be very dangerous. If you are aware of a mistake, then, of course, you have to be truthful. But be very careful how much information you volunteer. Answer only the question that has been asked.

 

This is a really good example of why it is always best to have legal representation when you are audited. You may end up admitting to some errors that you should have known about, and that can get you in trouble.

 

Question # 7-Did You File All of Your Tax Returns on Time?

 

The auditors check to see if all your other tax returns are filed and in the system. That way, they can also consider looking at those returns.

 

Another reason they ask this question is that when the audit is over, the auditor will consider penalties. The people who file all their returns correctly and on time often get charged less penalties.

 

Those with a history of NOT filing on time are a target for increased penalties. They also lose the ability to argue against having penalties because they are already guilty of other violations.

 

Question # 8-Who Prepared Your Tax Return?

What years did they prepare your returns? How long have you been working with that tax return preparer?

 

There are a few reasons for this line of questions:

 

  • If someone else was involved in preparing your returns, the auditor wants to determine who would be responsible for any incorrect information.

 

  • Also, if you’re being represented by the person who prepared your tax return, they want to know if that person is knowledgeable about your tax return. If they are not knowledgeable, the IRS can disqualify or disregard them as your representative.

 

  • NOTE: We do not recommend being represented by your accountant or tax return preparer during your audit. They lack the training and knowledge to defend this legal problem.

 

Question # 9-Have You Ever Been Audited?

 

This question isn’t looking for a yes or no answer. The auditor is looking for a reason to say that you “knew or should have known” that this was an issue. Yet you took the same action this time as you did previously.

 

Again, there are procedural and analytic reasons for EVERY question the auditor asks.

 

See next week’s blog when we review more IRS audit questions.

 

If you are being audited, and think you need professional help, contact Tax Law Offices today!