Unreported or underreported income is a common reason taxpayers get audited by the IRS. These cases can range from minor mistakes or serious problems. In some cases, the IRS could even pursue tax fraud penalties.
How the IRS Detects Unreported Income
The IRS receives information returns from employers and clients, such as Form W-2 and 1099-MISC. You should also receive one of these forms, and the IRS computer systems can match your information to the information they have on file.
If the numbers don’t match, the IRS can flag your return. In many cases, this is simply a typo or error that can be easily fixed without amending your return.
You may receive a CP-2000 notice if you have unreported or incorrect income items on your return. This notice informs you that the information on your return doesn’t match the information the IRS has.
The good news is that you can also receive this notice when the changes will lower your tax liability. If you agree with the proposed changes, you won’t need to amend your tax return.
If you disagree with the changes, you’ll need to submit a response form to the IRS. You may also need to contact your employer or the person reporting the information and ask them to correct it.
If you want someone else to handle this matter on your behalf, you can complete Form 2848, Power of Attorney and Declaration of Representative. Your chosen agent can then correspond with the IRS to resolve the issue.
How Long Does the IRS Have to Audit Your Return?
The IRS generally has three years to audit your tax return. However, there are a number of exceptions that can extend this time period.
If you understated your income by more than 25 percent, the IRS has six years to audit your return. In other cases, the IRS has unlimited time to assess additional tax on your return, such as when you were required to file a return and never filed it. The IRS also has unlimited time to assess tax when the taxpayer has engaged in tax fraud.
If you receive an IRS audit notice due to unreported income, contact a tax attorney to discuss your case.
Get help with IRS tax audits by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.