What Does the IRS Mean by an Inquiry?

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The IRS uses statistics to determine which returns it will audit.
The IRS uses statistics to determine which returns it will audit. (Image: Stockbyte/Stockbyte/Getty Images)

The Internal Revenue Service (IRS) requires taxpayers, businesses and organizations to file income tax returns each year. When the IRS receives your return, it will compare it with similar tax returns and your other financial records. If the IRS discovers too many discrepancies, it may conduct an inquiry.

Definition

An IRS inquiry, or audit, occurs when the IRS conducts an in-depth examination of a business or individual's financial records, accounts and deductions. The purpose of this process is to determine whether the business or individual is accurately reporting information on tax returns and whether the business or individual paid the correct amount in taxes.

Process

If the IRS selects your return for an inquiry, you will receive notification via telephone or mail. The IRS may conduct the inquiry by mail, or a representative may meet with you in person to review your financial records. If the IRS opts to conduct an in-person interview, the meeting will occur at your home, your business, your accountant's office or an IRS office. The IRS will inform you of the documents you must present during the interview.

Possible Outcomes

If you are able to show that your return is accurate and that you have paid all owed taxes, there will be no change to your return and the IRS will take no further action. However, if the IRS determines that portions of your return are inaccurate, they will propose changes to your return and may request additional payment. You have the right to dispute these changes if you believe your return is accurate.

Considerations

To avoid an IRS inquiry, report all income accurately and in the appropriate sections of your tax return, and only claim the deductions for which you qualify. If the IRS audits your return, gather all appropriate documentation and review it prior to the inquiry. You have the right to represent yourself or obtain counsel during the interview.

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