An IRS audit can be a very frustrating process. With that said, it is important to understand that it is nothing personal. In other words, it is not as if this particular IRS agent singled you out and decided he or she wanted to audit you. Therefore, try to stay calm and keep in mind that your ultimate goal is to complete the audit with the least amount of penalties and tax as possible.
You usually have to raise some red flags to trigger an audit. Maybe your charitable deductions or ministry expenses were enormous. Maybe you filed your ministry income on the wrong form. Either way—most of us won’t have to worry about an audit. However, a few clergy will need to prepare for the details of an audit—how long it lasts, what kind of paperwork you’ll need—depend on the kind of audit you have on your hands. And there are three basic types.
- Correspondence Audits: This is the simplest audit and usually happens when you’ve made a mistake on your tax return, like a typo.
- Office Audits: The office audit is a little more complicated (and a little more dreaded). You’re required to actually go into an IRS office with required paperwork.
- Field Audits: A field audit is sort of like an office audit, but the IRS comes to you. They visit your home or business and ask to see your records.
If you’re audited, the IRS will send you a letter and will never email you. As a general rule, if you get an email or a phone call from the IRS, there’s a good chance it’s a scam. The letter will tell you what kind of audit you’re dealing with and what specific records the IRS needs.
Once you know what is expected of you, you can start going through your records to find the relevant receipts and documents. Never send in your original documents or your only copy, and never send in more than is requested. If you can’t find relevant documentation, immediately request duplicates, since the auditors won’t accept the excuse that records are missing or lost.
Once you have all your copies and originals, get them organized, especially if you are facing an in-person audit— good organization shows the agent that you are a responsible taxpayer, and may result in the agent limiting the scope of their investigation.
As soon as you receive notification of an IRS tax audit, contact the Clergy Financial Resources. We can explain the audit process and help you prepare.
Once the audit is over, you’ll receive the findings, also known as IRS Form 4549 (PDF). If there are adjustments, this is where they’ll be outlined in detail, including how much you owe (or, if you’re really lucky, you’ll get a refund). If there are no changes, the report will tell you that, too.
If there are changes, you have two options. You can agree with the findings, then sign the report or form. If you owe money, the IRS offers several different payment options.
If you don’t agree, you have 30 days to do proceed with any of the following.
- Mail in additional documents you would like them to consider,
- Request a discussion on the findings with the examiner (you can do this and submit additional information to be considered).
- Discuss your case with the group manager or senior manager
- Request an appeal: If you do not agree with the proposed changes and you were not able to clear up the disagreement with the examiner than an appeal could be a good possibility.
If you don’t reply within 30 days, the IRS sends you a notice. If you don’t reply to that for another 30 days, they’ll consider the findings final.
Although an audit can be a scary process, if you prepare for the audit and act respectfully, chances are you can get through it without too much trouble. Otherwise, keep these tips in mind during your IRS audit and you should be fine.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
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Maple Grove, MN 55369
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