Everyone knows that taxpayers need to be compliant with the IRS to avoid civil and criminal penalties and extra tax debts. Taxpayers need to meet the regulatory and compliance IRS standards for various types of taxes. Be it an individual filling out the FBAR form or a business organization dealing with the payroll taxes. All income details must be disclosed when preparing IRS forms.
There are many taxation rules and regulations to navigate through. Taxpayers are responsible for being compliant with those rules. And that’s where the IRS Compliance Function (Examination) & Audits come in.
Let’s discuss the essential details you should about audits.
The IRS Compliance Function is a process by which the department officials check whether the taxpayer has included all the correct details in the tax return or not. Several methods are implemented for checking and verifying the records like cross-checking the Social Security Number, the income statements from both the domestic and foreign banks, checking the eligibility for different taxation forms like Form 114, Form 1040, and others.
IRS dispatch several officers to check the compliance level and prepare a detailed document asking for further clarification. The IRS implements several tools and techniques to check and verify compliance. Audits or examinations are proven to be effective in discovering errors.
The IRS audit is an examination procedure by which the IRS officials review and verify the transaction and financial account details disclosed in the tax return. This procedure checks whether a taxpayer is compliant with the tax rules or not. These audits are mainly done over correspondence, office visits, and field interviews.
Here is a short explanation of how the IRS conducts the audits:
The three different interpretations that the IRS can provide to conclude the audit are:
The results of IRS audits and examinations are significant for understanding whether or not a taxpayer is following all the tax rules and regulations. Failure to follow the regulatory standards or disclose all the information might lead to significant penalties, additional taxes, and interest on unpaid taxes.