The Statutory Notice of Deficiency is part of a series of notices sent by the IRS to propose additional tax, penalties and interest. Learn more about the types of IRS audits and the process of being audited from the tax experts at H&R Block.
Examiners at the correspondence and office levels aremuch less invasive. The examining agent is required to process many cases without much familiarity with the return itself. No one can be 100 percent certain of what their audit risk is or can fully audit proof their tax return, but prudence is the best way to safeguard yourself. This way, if IRS does come knocking, you can rest easy knowing that you should have nothing to worry about.
Step #1: Gather all your documents
The IRS has three years to audit most returns after they are filed. Here are the IRS statistics showing how many returns filed in 2016 were audited through 2020 when most audits for 2016 returns were completed. The committee is expected to release the Trump tax returns it has obtained after the Christmas holiday. The release of tax agency records showing the lack of audits prompted congressional Democrats this week to quickly propose legislation mandating annual audits of sitting presidents and disclosure of their returns.
Does Your Income Determine If You Get Audited?
To a large extent, yes. According to recent IRS statistics, your chances of being audited increase substantially if your income is over $500,000 a year. Roughly 0.2% of individual filers who earned between $200,000 and $500,000 in 2019 (the most recent statistics from the IRS) were audited, but 0.6% of filers who earned between $500,000 and $1,000,000 were audited. The likelihood of being audited is highest in the highest income group. Roughly 8.7% of those who earned $10 million or more were audited in 2019.
The agency lacks the resources to go after rich taxpayers. For years, a single revenue agent was responsible for the audits of Donald J. Trump. Returns with extremely large deductions in relation to income are more likely to be audited. For example, if your tax return shows that you earn $25,000, you are more likely to be audited if you claim $20,000 in deductions than if you claim $2,000. In 1963, an incredible 5.6% of all Americans had their tax returns audited. Jokes about irs audits were a staple topic of nightclub comedians and cartoonists.
Three Types of Audits
The IRS may disagree with you, stating, for instance, that you took a deduction that wasn’t allowed or that you should have reported more income on your return. If you disagree, present your interpretation of the facts and tax law to the IRS.
What are the 3 types of IRS audits?
Typically, your tax return is chosen for audit when something you have entered on your return is out of the ordinary. There are three main types of IRS audits: the mail audit, the office audit and the field audit.