Every year IRS selects only a few taxpayers to get the answers for inconsistency in their tax return. Do you know the process of this selection? Or in other words, do you know how you get trapped in the cage of tax audit? IRS considers some criteria to pick few tax payers out of millions. Following are some of them.
When your documents are not complete or up to date: Documents get audited by computers. A software will check all your documents that your have submitted. For example, if you’ve submitted K-2 forms or W-2 forms software will cross check the information provided with the details sent by the issuer of the forms. If IRS find that the information is not complete or some papers for tax relief are missing, you will receive a bill stating the extra amount you’d need to pay. The amount will be including extra amount such as penalties and interest. To clarify your position, IRS will give you around a month’s time after receiving the letter.
When IRS finds Mathematical errors in your filing: All documents submitted by you are cross checked by computer software and they can easily find errors. If you’ve made any calculation mistake you’re most likely to receive a letter from IRS. Most of the times, these mistakes are so juvenile that would have been easily avoided. Some of the mistakes are entering incorrect spelling of your name. You should write the exact spelling what is there in the bank account. Other minor mistakes include entering incorrect social security number or marital status. Major mistakes include wrong assessment of estimated tax and calculating earned income credit incorrectly.
IRS don’t do hard work in finding if your missing income details and calculates tax on whatever papers you’ve submitted. However, when system gives them information about your errors, you receive a letter from IRS asking for money that includes penalties, interest as well as lot of hassle for you. You get only a month to schedule an appointment with IRS prove that your original submission was correct and up to date.
Maintain your DIF score: The formula of DIF has been developed by the IRS to identify the returns that can be considered for tax audit. If your DIF score is high, chances are very high that IRS will send you a letter for audit. DIF score will shoot up, if your income has gone under a drastic change or unusual high deductions.
Public records and Statistics: On the basis of available public records and statistics IRS regularly checks the taxpayer’s standard of living. Public records may include motor vehicle and credit reports and property records. Therefore, maintaining your credit history is very important.
Be ready for random selection: Occasionally IRS selects taxpayers randomly for tax auditing. Even you could be the lucky one. In random auditing, auditor will go line by line expense for the whole year. Random auditing is the most dangerous as no one knows who is going to be the host of IRS auditor.