Income Tax Audit

What does Income Tax Audit mean?

An income tax audit is a review of an individual's income tax return by the Internal Revenue Service or state taxing authority to ensure the tax return was prepared in accordance with the Internal Revenue Code and other tax laws. The Internal Revenue Service typically audits tax returns filed within the last three years, although the Internal Revenue Service may audit tax returns filed as long as six years ago in cases of significant errors.

The Internal Revenue Service uses two primary methods to select tax returns for income tax audits. First, the Internal Revenue Service selects a certain number of income tax returns randomly. Second, the Internal Revenue Service compares returns against what it considers to be normal tax returns for a given income level. If the return exhibits unusual characters or questionable items such as unusually large deductions, it increases the chances the Internal Revenue Service will audit the return.

Using the above methods, the Internal Revenue Service selects just over 1 percent of individual income tax returns for audit every year. The Internal Revenue Service does not release details on how it performs the random selection or identifies specific outliers when selecting those tax returns to audit.

Depending on the specific items in question under the income tax audit, the audit may be performed through the mail or in person either at an office of the Internal Revenue Service or at the person's place of business.

(Tags - audit - IRS - Assets )

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