Tax Audits and Taxpayer Privacy
All taxpayers have the right to a prompt IRS audit and can appeal any disagreement within either the agency or US Tax Court. Hiring an experienced audit attorney to assist can make all the difference during this process.
An audit may result in no change to your tax return, an assessment that you owe additional taxes, or that a refund is owed. Other outcomes may include agreed-upon changes and criminal investigations.
Taxpayer Rights
Your right to receive professional and courteous treatment during an IRS audit cannot be violated; if this happens, speak up! Ask for a supervisor. Additionally, designating an authorized representative to represent you during the audit can help. Finally, any findings can be appealed by designating someone authorized.
Taxpayer rights help make our tax system fair and transparent, encouraging voluntarily compliance. Protecting these rights also protects taxpayers from becoming victims of fraud or abusive practices, building trust within the system.
Documents Requested for Audit
When selected for audit by the IRS, they usually demand proof for every line item on a tax return – this is known as “burden of proof.” Taxpayers can hire professional representatives to assist them during this process.
If a taxpayer disagrees with audit findings, they have recourse through formal hearings process or appeals via the IRS Appeals office – regardless of which audit office conducted the initial audit.
The PAO has made great strides toward establishing privacy constraints for IRS IT development plans and processes. However, all this work will go to waste unless larger IRS management incorporates privacy principles into specific job “clusters.” Likewise, CIO must develop specific security requirements and monitor compliance.
Preliminary Notice of Issues
An auditor conducting a sales tax audit must determine whether customers were charged the appropriate sales tax rate. This may prove difficult if your business utilizes multiple tax rates without an effective way of keeping track of them all.
If the examiner and taxpayer cannot come to an agreement about proposed adjustments, Appeals is available as a final recourse. It’s essential that taxpayers and their representatives who anticipate going before an Appeals panel move their cases along as quickly as possible in order to minimize delays in proceeding with their case.
As part of an effective solution, information document requests (IDRs) should be submitted in writing with an agreed upon timeline for responses to reduce chances of miscommunication and increase chances for resolution at audit level as well as extend statute of limitation periods on potential assessments.
Assessment
By default, any information submitted to the IRS remains strictly confidential, including tax returns and supporting documentation. However, criminal tax investigations involving high profile individuals such as politicians or celebrities may involve armed federal agents searching your property.
Behavior responses to audits depend on both the effectiveness and the taxpayer’s reporting behavior prior to an audit. Effective audits tend to increase compliance while ineffective ones decrease it due to availability heuristic, which causes people to evaluate risks by visualizing them vividly (Kahneman & Tversky 1981).
Appeal
Take note: Nearly every taxpayer who receives an official letter from the IRS containing audit findings has the option to appeal. Doing so could result in more favorable outcomes.
The committee holds that ongoing training in privacy values is vital to ensure respect for confidentiality is part of the culture at IRS. New exceptions from general confidentiality should be assessed for their potential to erode privacy, lead to inappropriate disclosure, or harm tax compliance negatively.
Tax audit issues can often be resolved at the appeals level; however, for new issues to be addressed effectively it’s often best to sue the IRS in U.S. Tax Court as discussed on our Tax Litigation page.
