Not All IRS Audits Are Created Equal

You don’t have to be a tax professional to know that a tax audit is not on anyone’s wish list. Most taxpayers think of an audit as a tremendous invasion of privacy wherein they have to produce documentation of every dollar they’ve ever earned. Some audits do require taxpayers to show numerous financial documents. 

Chances are, though, that if you are audited, you will never speak face-to-face with an IRS agent, which doesn’t necessarily make the stress go away. This blog will describe some of the more important components of an IRS audit so you will know some of what to expect. 

Why Does the IRS Audit People? 

Before we explain the different types of IRS audits, it’s important to understand why the IRS audits taxpayers. There are a few common reasons for IRS audits, such as:

  • Unreported income—in many cases, the IRS already knows how much money you made
  • An inordinate amount of claimed deductions or credits
  • Claiming a suspiciously large number of business expenses
  • Not reporting your investment income
  • Simply making an honest reporting error

Occasionally, the IRS also selects tax returns at random for audits. 

Desk Audit vs. Correspondence Audit

Around three-quarters of IRS audits are executed as correspondence audits. With this type of audit, the IRS typically tries to get the information it wants through fax, snail mail, or phone calls with the taxpayer. If you are notified that you are under a correspondence/mail audit, don’t count on meeting face-to-face with an IRS representative. 

The good news for taxpayers? Correspondence audits are relatively limited in scope. They’re often used to clear up a specific question on a tax return and rarely result in a multitude of requests from the IRS. If the situation grows more complex or the taxpayer isn’t being forthcoming, a correspondence audit can turn into a desk audit. 

A desk audit (sometimes called an “office audit”) involves an in-person meeting with an IRS employee. The taxpayer’s presence will be requested at an IRS office. A letter notifying the taxpayer of the impending office audit might also list documents needed to complete the audit. Rather than one isolated issue that can be handled by a correspondence audit, an office audit usually addresses several matters. A third type of audit—field audit—also involves a face-to-face meeting but is usually conducted at the taxpayer’s home or work. 

Tips for Taxpayers

The ultimate purpose of most audits is to verify the accuracy of a return that a taxpayer filled out. To lower your chances of being audited in the first place, ensure that all information you put down can be backed up with official documentation. It’s a good idea to keep all relevant documentation for at least six years. 

If you believe you’re about to be audited or have already received notice of an audit, it’s time to contact a tax professional. You may be well-served by the services of a tax advisor or CPA, but if you expect that the matter will not be easily resolved, one of your first calls should be to an established attorney with experience resolving tax controversies and disputes. Our firm understands how stressful this matter can be and will work tirelessly to get you back on the right path. Book a consultation today!

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