Filing taxes isn’t on the top of a list of fun activities for most people, but it’s something that must be handled carefully. Failure to file accurate tax returns can lead to significant issues with the Internal Revenue Service (IRS).
The IRS has many ways to identify issues with tax returns. Some of those issues include returns that don’t reflect a person’s financial activity, income or deductions. When issues arise, such as missing income or overstated deductions, the IRS will contact the filer to find out what’s going on.
Methods the IRS uses to spot issues
One of the most common methods the IRS uses is computer matching. As information is sent to the IRS, it can be checked against the returns that are filed under the Social Security, taxpayer identification or employer identification number. Any mismatch in the income or other information in the forms can trigger a deeper review or a notice to the taxpayer.
The IRS can also look into historical data from prior year returns, refund claims and other data it has available. If there are unusual deductions or patterns that differ from those of taxpayers with similar situations, it may trigger a review.
It’s also possible that the IRS will receive information from a whistleblower. Individuals, such as former business partners, spouses, employees or contractors, who report that the income a business reported it paid wasn’t correct. In some cases, they may also report other information that leads the IRS to look into a return more.
Dealing with the IRS on a tax matter, such as missing or misstated information, can be challenging and stressful. It’s possible that these issues are the result of a mistake, but the IRS may not see it that way. Showing what occurred and coming to a resolution is critical.
It may be beneficial to have someone on your side who can review the matter with you, but you must get this started quickly. Deadlines for responding to IRS notices are often short, but firm, so swift action is critical.