Reviews and Audits or Examination by Tax Agencies
There are several taxpayers who are not aware of the tax agencies review, examination and audits of their tax returns. They believe that once a tax return is filed their obligation has been completed. Although, it is correct their filing obligation has been completed but the tax agency has the right to select a return and send out review letters or conduct an examination and audit of the tax return depending on an individual tax return filed. It is a stressful situation to receive a review letter or notice for examination and audit by taxpayer. You need worry, we are there to help you! We will and can respond to the review and can represent you in an audit. However, the taxpayer has to cooperate in providing all the supporting documents that can substantiate the numbers or items
reported in the original tax return.
Generally, a tax return is selected or picked for an review based on a computer score which compares your return with that of similar tax return. The selection of your return could also be based on excessive deductions. Some of the individual tax returns are selected for a review when a Schedule C for reporting of business income and expenses is filed and it has excessive deductions.
IRS will issue a CP05 notice to the taxpayer if his/her tax return is selected for a review.
Some of the items that are generally selected in a review are:
- Source of Income document
- Computation of tax withholding and evidence to support it
- Tax credits are often questioned based on differing position of the law by the tax agency.
- Schedule C or E for self employed income and expenses or Rental activity income and expenses.
- Information on the tax return that does not reconcile or match with third party reports on Forms 1099-Misc or 1098-Int and more.
A review is handled with replying and supporting all documentation in line with the questions in the CP05 notice. If the taxpayer can address all the questions and support, it with documentary evidence the review is satisfied, and no further action is initiated.
Generally, when your tax return is under a review your refund is withheld or demand for additional tax liability is generated. Hence, if the taxpayer can respond successfully to the objections of the tax agency in the review notice then the refund will be released and or demand for additional taxes will be rescinded. However, if the taxpayer is not successful in replying to all the objections in the review notice then the refund will be disallowed, and tax liability will stand and will have to be paid.
Our tax professionals are always available to assist and guide you in these stressful times.