May 15, 2015

IRS Tax AuditEvery year, the IRS selects random tax returns for audit. Being audited by the IRS can be a stressful experience. Many people are unaware, however, that there are different types of IRS audits, and they must understand that not all audits are handled equally. In some instances, the IRS may just want to clarify some details or clear up minor errors.

If you are being audited, it pays to identify and understand the type of audit you face in order to be better prepared, and to determine whether or not you need legal representation on your side.

Correspondence Audit

The simplest, most common, and least severe form of audit is the correspondence audit. It basically involves the IRS sending out a letter in the mail that requests more information on a certain section of the tax return, such as a specific deduction that was claimed. In some instances, the letter may indicate an alteration on your tax return that results in your obtaining a larger refund or having to pay an additional amount.

If your tax return was prepared correctly and you have the documentation to support the items on your return, you may likely be able to handle a correspondence audit without seeking help from a professional. If, however, you are missing the necessary documentation or receipts, it may be best to consult with someone who can help you deal with the IRS.

Office Audit

An office audit, generally speaking, is more detailed compared to a correspondence audit. Here, you will receive a letter in the mail inviting you to meet with an agent at the IRS office for the audit. Since this type of audit is on a more serious note, you may opt to ask your tax attorney or accountant to come with you. An office audit may examine one or more aspects of your tax return, but usually finishes in one day. The IRS agent will give you time to supply any additional information or documentation needed.

Field Audit

A field audit is the most comprehensive and most serious form of audit. Here, the IRS agent visits your home or place of business. The IRS agent is not limited to investigating a particular item, and may ask to see financial statements, investment reports, and other forms of documentation. There are far less field audits compared to correspondence or office audits, and most field audits are conducted for businesses. If the IRS has notified you of a field audit, it would be best to have your tax attorney by your side.

Audit Reminders

When meeting with an IRS agent, it is always best to answer questions as clearly, concisely, and courteously as possible. Refrain from saying more than necessary, as a drawn-out answer may cause the agent to probe further. It is also best to consult with your tax attorney or accountant prior to the audit to get a better idea of what to expect and what to prepare.

Tax returns may be audited for up to three years, although there is no statute of limitations when a fraud has been committed. In order to be prepared, it would be best to keep your tax documentation on-hand for at least three years.

Categories: Blog, IRS, Tax Penalties, Tax Tips, Taxpayers' Rights