There are, generally, three entities that tax information is reported to: (1) the Internal Revenue Service (federal); (2) the Arizona Department of Revenue (state); and (3) cities and counties. Most of the taxes paid go to the federal and state governments, but there may be taxes that a city or county imposes on businesses. In order to ensure compliance, these government entities engage in a review process known as an audit.
These audits may review all of an individual’s or business’s transactions, a sample of the transactions, or a combination of transactions. An audit may take place via mail or an in-person interview. Normally, the process begins with an initial letter from the taxing agency, requesting more information or clarification regarding your taxes. Then, if there is a reason for an audit, you will receive an audit notification.
Both the IRS and the state of Arizona provide an independent review of any audit decisions. Specifically, if the amount of any single dispute is less than $25,000 the taxpayer may be represented in the appeal by an accountant, an enrolled agent, or an attorney. The state of Arizona allows a taxpayer to forgo paying any disputed amount during the appeal process.
It is no secret that a tax audit can be a long and arduous process. Because of this, it is important that individuals and businesses understand their rights and responsibilities. For example, individual’s have the right to confidentiality and the right to protest an assessment or a penalty. It is also the taxpayer’s responsibility to promptly answer any inquiries and maintain adequate records throughout the entire audit process.
When dealing with a regulatory agency, like the IRS or the Arizona Department of Revenue, it is crucial that you get the help of someone who has the necessary experience dealing with these entities. A minor clerical mistake or missing a deadline may cost you hundreds or thousands of dollars and countless hours of your time. A tax attorney will be able to ensure that all of your responses to the taxing entities are complete and comply with the law and may even find solutions that you never knew existed. A tax attorney will also review the documents and the procedures during the audit process to guarantee that the taxing agency does not infringe on your legal rights. The earlier you consult a tax attorney, the smoother the process will be.
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