How To Avoid An IRS Audit and What To Do When They Happen
An IRS audit can be stressful and time-consuming, especially for taxpayers and businesses in Southern California who are trying to stay compliant with ever-changing tax laws. Whether you’re based in Temecula, San Diego, Riverside, or San Bernardino, understanding how to avoid an IRS audit and what to do if one occurs is crucial.
At The Law Office of Pietro Canestrelli, A.P.C., we help clients across California navigate audits, resolve tax disputes, and maintain compliance with the IRS.
What Triggers an IRS Audit?
While some IRS audits are random, many are triggered by specific red flags on a tax return. For example, excessive deductions or unusually large tax credits relative to your income can raise concerns. Unreported income from freelance work, investments, or side businesses is another common issue. Large cash transactions that don’t align with your reported earnings can also prompt further scrutiny. Even simple mathematical errors or inconsistencies in your filings can draw attention. Self-employed individuals who file Schedule C with high expenses or repeated losses, and those with foreign assets or bank accounts that aren’t properly disclosed, are also more likely to be audited.
Tips for Avoiding an IRS Audit
File Accurate and Complete Returns
Carefully review your returns before filing. Ensure all income is reported and all deductions and credits are fully supported with documentation. Attention to detail reduces errors and flags.
Stay Within Normal Ranges
Tax returns are compared against others in similar income brackets. If your deductions or credits seem excessive compared to others with similar income, it could raise suspicions.
Be Cautious With Schedule C
For the self-employed, overreporting expenses or showing continuous losses may look suspicious. Make sure your expenses are legitimate and properly documented.
Report All Income Sources
Ensure all W-2s, 1099s, and other income forms are accounted for. The IRS cross-references these documents, so discrepancies are easily flagged.
Avoid Amended Returns When Possible
While sometimes necessary, amended returns are more likely to be reviewed. If you must file one, include a clear explanation and supporting documents.
What Happens If You’re Audited?
If you receive an audit notice, don’t panic. There are three main types of IRS audits:
- Correspondence audit: Conducted by mail and typically addresses minor issues.
- Office audit: Requires you to visit an IRS office with specific documents.
- Field audit: Involves IRS agents visiting your home or business for a comprehensive review.
The Audit Process
Once an audit begins, you’ll first receive a notice outlining the tax year and issues being examined. You’ll then be asked to provide documentation—such as receipts, bank statements, or logs. Depending on the audit type, this may be through mail, in-person meetings, or home/business visits. After reviewing your materials, the IRS will issue its findings and may propose changes. You have the right to accept, dispute, or negotiate these results.
What To Do If You’re Audited
Read the Notice Carefully
Your audit notice includes key details such as the type of audit, the tax year in question, and what documents are needed. Take the time to understand the scope and deadlines.
Contact a Tax Attorney
Consulting a tax attorney early can protect your rights and ensure the process is handled properly. Our firm has extensive experience helping clients throughout California respond to audits.
Prepare Your Documentation
Collect and organize all relevant materials, including receipts, logs, ledgers, and bank statements. Well-organized documents can expedite the process and build credibility.
Respond Promptly and Professionally
Timely responses help reduce complications. Keep your communication clear and stick to what the IRS has requested. Providing additional, unsolicited information can complicate matters.
Explore Your Options
If the IRS proposes adjustments you disagree with, you may appeal. Our firm helps clients explore all available resolution paths, including an Offer in Compromise or Installment Agreement.
FAQs About IRS Audits
How far back can the IRS audit?
Typically, the IRS can audit any return filed within the last three years. However, this window extends to six years for substantial underreporting of income and is unlimited in cases of fraud.
Will an audit result in penalties?
Not necessarily. If errors are found, you may owe additional taxes, interest, or penalties. If the IRS suspects fraud, more serious consequences such as criminal charges could apply.
Can I appeal an audit result?
Yes. Taxpayers can request a meeting with an IRS supervisor, file a formal appeal, or take the matter to tax court if necessary.
Let Us Help You Face the IRS with Confidence
If you’re facing an IRS audit or concerned about being targeted, let The Law Office of Pietro Canestrelli, A.P.C. help. We serve clients in Temecula, San Diego, Riverside, San Bernardino, and throughout California, delivering skilled, assertive representation in all IRS matters.
