An IRS audit is the thing most taxpayers are afraid of. But most of this fear comes from not knowing what an audit is all about, what it entails and most of all, what to do when you receive and audit notice. So if you know a few basic things about the whole matter, it takes a lot of fear out of it. Receiving an audit notice does not mean that you have committed an offence. In fact, audits can result in acceptance of the tax return without change or even a refund. If that be the case, how does the IRS choose who to audit in the first place? There are several factors that govern who the IRS chooses to audit. Firstly, some tax returns are chosen for audit through the screening of a computer. An IRS computer compares data from a return to average numbers from other people’s tax returns in similar situations looking for variances. The data that is reviewed by the computer are things like charitable donations, interest income and variations from averages in your income bracket or zip code. If a major variance is detected, that tax return is chosen for audit.
Secondly, tax returns are chosen for audit based on comparisons with other documents like your W2s. The computer sees if your tax return matches up with your W2 and if there is a mismatch, that return is called for audit.
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