IRS Confirms – Thousands Under Investigation for This Tax Return Activity

As the U.S. tax season begins, the Internal Revenue Service (IRS) has started processing tax returns and issuing refunds.

However, taxpayers must be cautious when filing their returns to avoid triggering an audit. Certain mistakes, particularly those related to revenue reporting for the year 2024, could lead to an investigation by the IRS.

Why the IRS May Investigate Your Tax Return

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One of the primary reasons the IRS might flag a tax return for investigation is the use of approximations or rounded numbers on forms such as the 1040 tax return. For example, rounding amounts to figures like $500 when the actual amount is closer to $495 can cause issues.

The IRS is accustomed to seeing precise figures and may view any overestimation or rounding as suspicious. Instead of rounding to the nearest hundred, it’s crucial for taxpayers to be accurate in their calculations and round only to the nearest dollar.

For example, if you are a business owner who purchases an item for $495.25, round it to $495 rather than $500. An inflated amount might require additional documentation, potentially drawing the attention of the IRS.

Examples of Rounding vs. Approximating on Tax Returns

What to Do if You Receive an IRS Audit Notice

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Receiving an IRS audit letter can be alarming, but it is crucial to act quickly. Here’s what you should do if you find yourself in this situation:

1. Review the Audit Notice: Carefully read the letter to understand the reason for the audit.
2. Gather Documentation: Collect all records and evidence supporting the information reported on your tax return.
3. Seek Professional Advice: It is advisable to consult with an accountant or tax representative to ensure you’re handling the audit correctly.
4. Respond Promptly: Make sure to reply within the specified deadline to avoid additional penalties.

In some cases, the IRS may accept the supporting documents without requiring a change to your return. Proper documentation and meeting deadlines can help streamline the audit process.

How Long Does the IRS Have to Audit a Return?

The IRS typically audits returns for the last three years, but in cases where a significant error is detected, the audit window can extend back as far as six years. Most audits tend to focus on returns from the last two years.

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If an audit remains unresolved within the designated timeframe, the taxpayer may request an extension of the statute of limitations. This allows for additional documentation submission, an appeal of the findings, or even a request for additional refunds.

Be Aware of Large Cash Deposits: IRS May Be Watching Your Bank Account

Depositing large sums of money into your bank account, especially amounts exceeding $10,000, can raise red flags with the IRS.

While it is not illegal to deposit more than $10,000 in cash, the Bank Secrecy Act of 1970 mandates that banks report such deposits to the federal government.

The Financial Crimes Enforcement Network (FinCEN) uses this data to monitor potential cases of money laundering and tax evasion.

Whenever a cash deposit of $10,000 or more is made, the bank is required to file a Cash Transaction Report (CTR). This report includes critical information such as:

• Full Name of the Account Holder
• Registered Address
• Social Security Number
• Driver’s License Number (if applicable)
• Date, Amount, and Type of Transaction

Bank employees are obligated to verify your identity during the transaction, although they are not required to inform you that a CTR is being filed.

They may also inquire about the source of the funds. While you are not obligated to answer, it is recommended to be transparent to avoid raising any suspicions.

The IRS takes significant measures to ensure tax compliance, and while filing taxes, accuracy is crucial. Rounding figures or making errors on your return can lead to an audit, potentially costing you time and money. Additionally, large cash deposits are closely monitored, so it’s important to understand the reporting requirements.

By being diligent, keeping thorough records, and responding promptly to any communication from the IRS, you can avoid unnecessary complications. Always stay informed and consult a tax professional when in doubt.

FAQs

What happens if I round numbers on my tax return?

The IRS may flag your return for investigation if you round figures too far, especially when amounts on tax forms like the 1040 are supposed to be precise.

How can I prevent an audit?

Ensure all amounts reported on your tax return are accurate and avoid approximations. Keep well-organized records and always meet IRS deadlines.

How long can the IRS audit my tax return?

The IRS generally audits returns for three years but may extend the audit period to six years if a significant error is found.