Tax Return Flagged for Review by the CRA: What You Need to Do
Flagged for a review by the CRA? You’re not alone! Every year the IRS reviews approximately 3 million tax returns under their income tax review program. It’s essential to know that getting a review doesn’t always mean that you’ll be audited. Here’s what a tax review situation may look like:
What’s a Tax Review?
Unlike an audit, a tax review is a simpler and more informal look at the information you submitted on a tax return. There are four different categories of reviews in Canada:
1.Pre-Assessment Review: This happens after you file a tax return and before the CRA issues a first notice of assessment. During this stage, they review the overall information to ensure there’s no red flag or inconsistency.
2.Processing Review: This takes place after the CRA issues a first notice of assessment. If they find any errors, a reassessment notice is sent.
3.Matching Review: This review matches the information you provided with that received from third parties.
4.Special Assessments Review: This is a detailed and more specific review of “problematic” areas of the income tax return.
How Does IRS Select Tax Returns Review?
The IRS uses a Discriminant Function System (or DIF) score system. This computerized scoring method helps them evaluate and assess your return, after which it gives a score on based on chances that the tax return will need changes. They compare your return to other previous models, after which the score is generated. If your return receives a high DIF score, it’ll most likely be selected for a review.
What Should You Do If Your Return is Flagged for Review?
First things first, don’t panic, this isn’t a tax audit it’s just a routine check. If your income tax return is being reviewed, this is only done to ensure your return is accurate. It helps confirm that everything from amounts and deductions to credits is correctly reported and can be adequately supported. As soon as you are notified about the review, respond and send all the requested information immediately. This will ensure that the process is done promptly, and there are no unwanted delays. Consulting with an accountant would be your best bet, as they’ll help collect and manage the required documents.
How Can We Help?
If you have a complicated tax situation, our accounting specialists from Faber can help you out. Being in the industry for over 20 years, we’ve worked with several clients, providing excellent tax advisory services and tax consultancy firms.
Our team will work with you every step of the way to achieve success. Get in touch with our experts in Edmonton, Alberta today at 780-432-5262, and book an appointment.