Preparing for an audit by the Internal Revenue Service (IRS) is easier when you have some idea of the type of examination ahead.
Generally, the IRS conducts four types of audits. Features of each audit include:
- Correspondence Audit: Correspondence audits usually cover one return year and may be concerned with a particular issue, such as the Earned Income Tax Credit (EITC). Questions invoking deductions, a refund, or business expenses are often covered in correspondence audits as well. Receiving notice of a correspondence audit usually means the IRS believes it can resolve a question through a review of a few specific documents. Because the focus of a correspondence audit is on a specific question, this type of exam is the audit most frequently conducted by the IRS and represents the highest volume audit type conducted by the agency. Correspondence audits can take anywhere between one to approximately ten months to resolve.
- Office Audits: While being asked to attend an appointment at your local IRS field office can be nerve-wracking, these are the second most common type of IRS audit. It may involve issues or questions similar to those reviewed in a Correspondence audit that are too complex for a review by mail. With the initial appointment letter, you will receive information on the specific documents you should bring. Office audits may conclude more quickly than a correspondence audit because you are working directly with an IRS examiner, rather than exchanging documents in the mail.
- Field Audit: A Field audit is conducted at your home or place of business and is handled by an IRS agent. Field audits may address issues around complex business returns or documentation, the complicated financial documents of high-wealth individuals, or taxpayers with complicated tax returns. Like an office audit, you work directly with an IRS agent with whom you can follow up, but these audits can often last up to a year.
- Taxpayer Compliance Measurement Program: A far less common audit is the IRS Taxpayer Compliance Measurement Program Audit. During the audit, an IRS agent reviews complete documentation for each line of a tax return. The audits are purportedly random and result in a lengthy, detailed examination that can stretch years in length.
All audits review for errors that might result in additional tax due on the return. Each audit is an opportunity for the IRS to inquire about transactions, returns, deductions, or other activities that may appear to be tax fraud. If evidence arises in a certain tax year, additional return years can be added to the audit. At the conclusion of an audit, your examiner will notify you if they believe additional taxes or penalties are due.
When you receive an audit letter, whether it concerns an offshore tax issue, your recent return, or payroll taxes, speak with an experienced tax attorney. Skilled legal counsel can prepare you for an audit and accompany or attend the audit to ensure you produce the required documents without providing unnecessary information. Your tax attorney will discuss options like appeal with you if you are assessed additional taxes or penalties.
No one wants to be audited. If it happens to you, speak with a tax professional for straightforward assistance.
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