Essential Information on IRS Audits

Few things strike fear into the heart of an individual or business owner more than the idea of having to undergo an IRS audit. The mere thought of having an IRS agent sift through your personal and business financials, accounting and other records is intimidating and unpleasant. The discomfort can be intensified if the taxpayer is not familiar with the audit process, what to expect, and the steps they can take to prepare. The good news is that not every IRS audit is the same. There are different types of audits that involve a different level of review based on your specific circumstances. These include correspondence audits, office audits, field audits and random reviews. The result of these audits can be as simple as modifying a tax return to more complex resolution steps. To help clients, prospects and others understand IRS audits and how to respond if selected, Wilson Lewis has provided a summary of the audit process below.

Audit Selection Process

Many taxpayers are curious to know why they were selected for an IRS audit. According to the IRS, returns are selected for audit from a random selection and computer screening process or when a tax returns involves issues or transactions with other taxpayers that are already under audit. It’s important to note that filing an amended return doesn’t increase the chances a taxpayer will be selected for an audit.

Types of IRS Tax Audits

• Correspondence Audit – This is a simple procedure where the IRS will send a letter highlighting an issue they have found and request the taxpayer to send additional information or documentation to substantiate a claim made in the tax return. Items such as receipts, invoices or other documents will need to be photocopied and sent to the IRS to review. In most cases, the tax return will need to be corrected and refiled. It’s important to save all copies of your correspondences including documentation sent to the IRS.
• Office Audit – This type of audit is used when the issues are too complex to resolve in a correspondence audit. As the name suggests, the audit takes place at a local IRS office and often includes an interview component. The auditor will ask a series of questions about the item in question, and often other questions to corroborate the information on the tax return. These audits usually last a day as all issues are wrapped up by the conclusion of the visit. If additional information is requested the taxpayer will be given sufficient time to meet the request.
• Field Audit – This is the most serious type of audit the IRS will conduct since the solution to the identified issues could not be resolved through mail or an office visit. The IRS will visit your business and review records, documentation and other items to verify the legitimacy of the company, employees and other business-related expenses. A field audit can be a longer process than an office audit and can last several days to a week or more.

Taxpayer Rights

The IRS has an entire section of their website dedicated to taxpayer rights and how they should expect to be treated when dealing with the Service. For example, it states that taxpayers have a right to professional and courteous treatment by IRS employees and a right to privacy and confidentiality about tax matters. Click here to review the full list of taxpayer rights.

Contact Us

IRS audits can often be resolved with a small investment of time and minimal disruption. If you have been selected for an office or field audit you may want to consult with tax professional before providing any information to the IRS. This will ensure your interests are protected and exposure reduced. For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.