When tax time rolls around, most filers receive refunds. But just because you receive one for tax year 2013, it doesn't mean your return passed muster and you can forget about an audit. All it means is that IRS computers checked arithmetic and other basic items.
So make sure to file away those checks and other records that back up deductions and other items, as well as a copy of your return. Keep your records at least until the statute of limitations runs out for an audit—generally, three years after the filing deadline. But the IRS gets six years to check if you understate your income by 25 percent or more. And there's no time limit if the IRS shows you failed to file or you filed a fraudulent return.
Despite what you may have heard, the risk of an audit doesn't decrease by filing late, rather than early. All returns, whether filed early or late, go through IRS computers that scan them for arithmetic errors and single out returns for audit on the basis of a top-secret scoring system. The agency then scrutinizes high scorers, as well as some Form 1040s chosen purely at random, to determine which ones should actually be examined. One important element in the selection process is how the amount of your itemized deductions on Schedule A of Form 1040 compares with the total taken by others with comparable income levels.
Errors of fact or judgment on your return for tax year 2012 shouldn't still be causing you cold sweat, however. A recalculation on IRS Form 1040X usually takes very little time, plus whatever money is involved if you feel you owe something. You can also use 1040X if you now discover that you overpaid, provided you do so within three years after the return's filing deadline.
For instance, you're not stuck if you take the standard deduction and later discover that itemizing for such expenditures as mortgage interest and real estate taxes would've been more advantageous. Use 1040X to amend your return and switch to itemizing.
If you get a computer-generated notification of unreported income, don't send a payment to the IRS without first checking on whether you actually omitted income. Every year, without fail, the IRS sends out many erroneous notifications concerning, for example, 1099 forms that reflect payments received by freelancers from clients, interest from savings accounts, and dividends from stocks.
If you move or otherwise change your address after filing your return, it's advisable to notify the IRS. Use IRS Form 8822 (Change of Address). Reporting the change should ensure that you receive and are able to respond to mail the IRS later sends—for instance, a bill for additional taxes or a notice that it has selected your return for an audit. Expecting a refund? Also notify the Post Office. This will help in forwarding your check to your new address, unless you authorized the IRS to directly deposit the refund into your checking account.
All that Form 8822 asks you to provide is your old and new addresses, your full name and Social Security number, and, if you're a joint filer, your spouse's full name and Social Security number. Mail Form 8822 to the IRS Service Center that received your return, not the Service Center for your current address.
About the author:
Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator) and an attorney. More on this topic is available from "Julian Block's Year Round Tax Strategies", available at julianblocktaxexpert.com.