Quiz: Do you know how to Prepare for an Income Tax Audit?
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About This Quiz
There are few letters more dreaded than one telling you you're being audited. However, with proper preparation, there should be little to fear. Take our quiz to see if you know how to prepare for an impending audit -- and how you can keep the tax man away in the future.
In 2007, approximately what percent of all U.S. individual tax returns did the Internal Revenue Service (IRS) audit?
The IRS audited nearly 1.4 million tax returns that were filed by individuals in 2007. That may seem like a small percentage, but it was 100,000 more people than had been audited the previous year.
How many different types of income tax audits does the Internal Revenue Service perform?
IRS audits are either office, field or correspondence audits, depending on the method used to examine the data.
What less frightening term does the Internal Revenue Service use for an audit?
The IRS may have found a nice euphemism, but most people are still intimidated by the process no matter what it's called. Proper preparation is key though.
Which examination method does the Internal Revenue Service use for the most common tax return problems?
Questions about specific deductions, missing forms or mathematical errors are typically handled entirely via mail, not in person.
In which type of audit will an Internal Revenue Service examiner come to see you at your home or office?
An office examination is one in which you (or your representative) will need to go into the IRS office to account for your claims.
How long do you have to appeal the Internal Revenue Service's findings from their initial examination?
If you disagree with the initial findings of the IRS examination, you are entitled to appeal. The appeal could take a year or more.
If you still disagree after your appeal has been heard, what is the next level of dispute that is open to you?
If you decide to appeal the decision of the IRS Appeals Officer within 90 days of his or her decision, your next hope for help will be in a specialized federal tax court.
Why should you not continue to appeal unless you're certain you are correct in your claims?
Fines and interest are not deferred during the appeals process, so if you ultimately end up losing, you will be faced with a larger amount to pay than you would have seen earlier.
What percent of taxpayers who earned at least $1 million in 2006 did the IRS audit?
Though being wealthy may mean an end to some problems, it can bring about some new ones.
How does the Internal Revenue Service choose most of the tax returns it examines?
A computer program known as the Discriminant Inventory Function System flags returns that feature common oddities. These include such things as a sudden jump in income or increase in the number of deductions.
What is the statute of limitations for examining fraudulent income tax returns?
Tax fraud and unfiled returns can always be investigated and prosecuted, so if you neglected to file, you shouldn't just hide from it and hope it goes away.
What is the statute of limitations for examining an on-time return that is not suspected of fraud?
If you have filed your return on time and in good faith, holding on to your financial records for three years should be sufficient.
What should you do if you have a legitimate business expense that you know may look suspicious to an Internal Revenue Service auditor?
If you have a legitimate business reason to buy season tickets to your favorite sports team, make sure that you can fully document and explain it, and keep detailed records of how that expense is justified as a deduction.
What is one way to minimize the chances that you will be audited for your income tax return?
If your tax liability is vastly different from other people in your profession, it's likely to be flagged by Internal Revenue Service computers.
Why might you be audited even if you file your tax return on time and with no noticeable irregularities?
Random audits are used as a benchmark for the non-random audits. If you always file on time and pay what you are supposed to, you should have nothing to fear from the process.
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