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Types of IRS Audits: Correspondence, Office, and Field Audits

Audit Representation

Facing an IRS audit can be a daunting experience, but understanding the different types of audits and what to expect can help alleviate some of the stress associated with this process. The Internal Revenue Service (IRS) conducts audits to ensure that taxpayers accurately report their income and pay the correct amount of taxes. There are three primary types of IRS audits: Correspondence Audits, Office Audits, and Field Audits. Each type serves a specific purpose and comes with its own set of procedures. In this guide, we’ll explore these types of audits in detail to provide you with a comprehensive understanding of how they work.

Correspondence Audit:

  • Overview: A Correspondence Audit is the least invasive and most common type of IRS audit. It typically involves the IRS requesting additional information or clarification about specific items on your tax return. The entire audit process occurs through written correspondence, making it less intimidating than other types of audits.
  • Triggers: Correspondence audits are often triggered by discrepancies or inconsistencies found on your tax return. These discrepancies can be related to issues like missing documentation, errors in calculations, or unreported income.
    Procedure:
  • Notification: The IRS will send you a letter (notice) that details the specific issue they want to review. This notice will include a deadline for responding, usually 30 days from the date of the letter.
  • Response: You are expected to respond to the notice by providing the requested documentation or clarification for the issue in question. This can often be done through the mail.
  • Resolution: Once you’ve provided the requested information, the IRS reviews your response and makes a determination. If the issue is resolved in your favor, the audit concludes with no further action required.
  • Adjustment or Payment: If the IRS determines that changes are necessary, you’ll receive a notice outlining the adjustments to your tax return. If you owe additional taxes, you’ll need to make the payment by the specified due date.

Office Audit:

  • Overview: An Office Audit, also known as an “in-office audit,” is conducted at an IRS office or a Taxpayer Assistance Center. During this type of audit, you’ll meet with an IRS auditor to review specific aspects of your tax return.
  • Triggers: Office audits are generally triggered by more complex issues on your tax return, which may require an in-person meeting to resolve. These issues can include substantial deductions, business expenses, or self-employment income.

Procedure:

  • Notification: You’ll receive a letter from the IRS notifying you of the audit and requesting that you schedule an appointment at a local IRS office.
  • Appointment: You’ll need to gather all relevant documentation and meet with an IRS auditor at the designated office. This meeting is typically scheduled in advance.
  • Review: During the meeting, the IRS auditor will examine your records, discuss the issues in question, and may ask you for additional information or clarification.
  • Resolution: After the audit is completed, the auditor will provide you with their findings. If there are adjustments to your tax return, you’ll have the opportunity to agree with them, request further review, or appeal the decision.
  • Adjustment or Payment: If adjustments result in additional tax liability, you’ll need to pay the owed amount by the specified deadline.

Field Audit:

  • Overview: A Field Audit is the most comprehensive and potentially intrusive type of IRS audit. During a Field Audit, an IRS auditor visits your home, business, or tax professional’s office to conduct an in-depth examination of your financial records and assets.
  • Triggers: Field Audits are typically initiated when the IRS suspects significant discrepancies or inaccuracies in your tax return. They often involve complex issues, such as substantial underreported income, unreported foreign bank accounts, or fraudulent activities.

Procedure:

  • Notification: You’ll receive a notice from the IRS notifying you of the impending Field Audit. The notice will include information about the IRS agent assigned to your case and a request for you to gather specific documents for the audit.
  • Pre-Audit Meeting: Before the audit commences, you may have a pre-audit meeting with the IRS agent to discuss the scope of the audit and address any initial concerns or questions.
  • On-Site Visit: The IRS agent will visit your location (home, business, or tax professional’s office) to conduct the audit. They will review your financial records, interview you or relevant individuals, and inspect assets and property if necessary.
  • Findings: After the on-site audit, the IRS agent will provide you with their findings and any proposed adjustments to your tax return.
  • Resolution: You will have the opportunity to discuss the findings and either agree or disagree with the proposed adjustments. If you disagree, you can request a review or appeal the decision.
  • Adjustment or Payment: If there are additional taxes owed due to the audit, you’ll need to make the payment by the specified deadline.

Frequently Asked Questions

Can I refuse to participate in an IRS audit?
While you have the right to appeal an audit’s findings, it’s generally not advisable to refuse to participate. Non-cooperation can lead to more severe consequences.
How long does an IRS audit take?
The duration of an audit can vary significantly depending on the complexity of the issues involved. A Correspondence Audit typically takes a few months, while Office and Field Audits can take longer, sometimes extending for several months or more.
Can I bring legal or financial representation to an IRS audit?
Yes, you have the right to be represented by a tax professional, attorney, or accountant during an audit. Having representation can help protect your interests and ensure that you are well-prepared for the audit.
What if I disagree with the findings of an audit?
If you disagree with the audit’s findings, you can request a review by the IRS or, in some cases, appeal the decision to the U.S. Tax Court. Professional representation is often beneficial during this process.
How can I prepare for an IRS audit?
To prepare for an audit, gather all relevant documentation, organize your financial records, and be ready to provide clear and accurate information to the auditor. Consider seeking professional assistance to ensure you’re well-prepared and understand your rights during the audit process.

Summary:

Facing an IRS audit can be a challenging experience, but being well-informed about the different types of audits and your rights during the process is crucial. By understanding the nuances of Correspondence, Office, and Field Audits, you can approach the audit with confidence and ensure that your rights are protected throughout the examination.

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