The Federal Tax System: Filing Taxes & Auditing

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  • 0:01 The What & Why of Taxes
  • 0:40 Preparation Process
  • 1:36 Filing Process
  • 3:31 Auditing
  • 4:45 Lesson Summary
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Lesson Transcript
Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

In this lesson, we'll define the function of the Internal Revenue Service and discuss the process of tax preparation. We'll also explore two methods of filing taxes and learn how tax audits are completed.

The What & Why of Taxes

Mr. Ojukwa accepted a professorship at one of the top Ivy League universities in the United States. The university's human resources department enrolled Mr. Ojukwa in a series of seminars to assist in familiarizing him with United States customs. The first seminar reviews the U.S. tax system. The facilitator, Jan, starts by explaining that income taxes are a percentage of one's income paid to the United States government to support federal programs and operations, such as the national defense, national parks, retirement benefits for federal employees, and healthcare programs.

Preparation Process

Jan polls the group to see if they know the name of the entity that governs U.S. tax laws and manages collection. Mr. Ojukwa raises his hand and says, 'the IRS.' 'Correct, the IRS, or Internal Revenue Service,' Jan says. She goes on to explain that each year, the IRS publishes changes to the tax code, some of which are extremely complex. Based on an individual's personal situation, he or she might seek a certified tax preparer or accountant to prepare his or her taxes. Tax payers also are able to purchase software, use online tax preparation software, or simply download the required forms from the IRS's website and complete manually. Jan stresses that, whichever process an individual chooses for preparation, it's imperative that the tax payer or preparer is familiar with the tax code, rules, and requirements to ensure an accurate tax return.

Filing Process

Next, Jan moves on to the filing process. She explains that once an individual's taxes are prepared, they're ready for filing. All personal tax returns, regardless of whether the individual owes taxes or will receive a refund, are due on April 15th. There are several methods to file taxes. Jan details each one.

First, an individual can simply mail his or her return and any other required documents to the IRS. The mailing address is dependent on one's state of residence, so it's important that an individual access the correct mailing address on the IRS website or on the back of their tax booklet.

Second, an individual or his or her tax preparer can submit the forms electronically via an approved IRS vendor. Sometimes this process is free, though certain vendors charge based on the type of return. Also, certain conditions might apply to file electronically. For example, if an individual is in bankruptcy, he or she might not be able to file electronically.

There are advantages and disadvantages of each filing method. The first advantage of mailing a return is confidence in knowing personal information was not compromised electronically. However, a disadvantage is processing time. The IRS takes longer to process the return since it must manually input the information. Therefore, an advantage of electronic filing is less processing time. If an individual is expecting a refund, that's good news, because he or she will get the money more quickly. A disadvantage of electronic filing, as mentioned earlier, is sending personal information via the Internet.

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