Understanding IRS Investigation and Audit Processes: Key Differences and Procedures
The Internal Revenue Service (IRS) plays a critical role in ensuring tax compliance, but its processes for investigating potential tax fraud and conducting audits can be confusing. This article aims to clarify some common misconceptions and provide detailed information about the steps involved in both investigations and audits.
Does the IRS Investigate You if They Suspect Tax Fraud?
A common misconception is that the IRS investigates individuals for tax fraud, similar to how law enforcement agencies operate. However, the IRS does not conduct investigations in the traditional sense. Instead, they use sophisticated artificial intelligence (AI) programs to review tax returns. The AI programs identify returns that do not fit established patterns, alerting the IRS to a potential issue that may require further review.
No Notification if Tax Fraud is Susppected
Even if the IRS suspects tax fraud in your case, they are not required to notify you if they refer your case to the criminal investigations division. This means the IRS may make a determination without informing you directly. Additionally, even if you question the case officer about your status, they are not legally bound to provide details or confirmation.
IRS Tax Audits and Payment Plans
If the IRS finds significant violations or discovers discrepancies, they will give you time to pay the taxes you owe. If you cannot afford to pay the entire amount at once, the IRS typically permits a payment plan. However, to establish a payment plan, the IRS will require a written agreement. This agreement ensures that the IRS retains the right to enforce their claims without further bureaucratic steps.
The Notification Process
When the IRS initiates an audit, it will notify you by in writing, as per IRS regulations. This notification is a formal letter that will include all the necessary details. The IRS will not communicate with you by email, phone, or text. If you are unsure of the legitimacy of a contact, you should verify the information on the IRS website and contact your local IRS office.
How the IRS Reviews Tax Returns
The IRS employs a systematic approach to review tax returns. AI programs process millions of returns annually, approving the majority as “processed” and sending out refunds accordingly. However, a small percentage of returns are flagged for closer scrutiny if they do not fit the typical patterns of taxpayers in similar circumstances.
If serious issues are found, the IRS will perform an audit. The purpose of this audit is to correct the return and provide a detailed explanation. You have the option to accept the corrected return or appeal the findings. If no issues are found, the case is closed without further follow-up, and you will not know that your tax return was reviewed.
Important Safety Measures
If you receive a letter from the IRS, do not fall prey to scams. The IRS will only communicate through formal letters and will not initiate contact via email, phone, or text. If you receive a call from someone claiming to be from the IRS and did not receive the letter, ask for the case number to verify its authenticity. If the IRS calls you, always ask for the case number and verify it on the IRS website.
In summary, the IRS does not investigate in the traditional sense but uses AI to flag returns for closer review. If issues are found, they will contact you in writing to discuss the matter. Understanding this process can help you avoid confusion and potential scams.