Understanding the 3 Types of IRS Audits

One of the biggest reasons taxpayers fear IRS audits is a lack of understanding of how the process works. As with anything in life, things will always seem more manageable and less scary when you are educated and knowledgeable about what is going to happen.

Even when something is in fact going to be very difficult—and not all IRS audits are—knowing how the process is going to play out ahead of time can help you more effectively prepare and minimize the stress and anxiety surrounding the situation at hand.

In this blog, we will detail the three potential types of IRS audits, and how each process plays out following your receipt of a notice from the IRS that you are going to be audited. Keep in mind, under most circumstances you will want to have an attorney represent you throughout the auditing process, no matter what type of audit it is. For a more thorough explanation of the benefits of having a tax attorney represent you during an IRS audit, be sure to check out this previous blog.

Correspondence Audit

The correspondence audit is by far the most common of all IRS audits. Mostly utilized for taxpayers without extremely large amounts of income, these type of audits are conducted entirely through the mail, which can sometimes lead to potential issues with expediency. However, the correspondence audit usually only requires the taxpayer to submit some extra verification regarding certain aspects of their tax returns. The IRS may also propose adjustments based on information they’ve received from third-party sources.  Either way, they will indicate in their correspondence what aspects of your return require verification or further support, and then you will respond—also through the mail—with the appropriate documentation. Some of the more common aspects of income that can lead to a correspondence audit from the IRS include things like alimony, various itemized deductions, and foreign tax credits. You will want to consult with an experienced tax attorney before submitting your response, however, particularly if you do not have the documentation needed to verify the information on your tax return.

Office Audit

An office audit is when the IRS requests that you actually come to an IRS field office where an auditor will conduct an interview with you to verify certain claims from your tax returns. The IRS will tell you when you need to come to the office, and what supporting documentation you will need to bring with you. Usually, this type of audit will also be meant to examine and verify specific aspects of your return, as opposed to combing through all aspects of your return. Generally, the IRS can complete this type of audit in one day, and you will certainly want to bring a tax attorney with you to advise you and advocate on your behalf, ensuring that you do not give the IRS more information than necessary. An office audit may occur if the results from a correspondence audit were not sufficient, or the IRS may skip directly to this type of audit if there are more complex issues with your return than could be effectively answered by mail.

Field Audit

This is the most severe and serious type of audit, but it is also the least common. In a field audit, the IRS will have an auditor come to your home, place of business, or accountant’s office your tax professional’s office. This audit will be comprehensive, analyzing just about every aspect of your returns. Generally, the IRS will conduct a field audit if there is a serious issue for which they are trying to uncover more evidence, or in situations where there are issues surrounding a high-income return. More than any other form of audit, you should always have a knowledgeable tax attorney present to represent you during an IRS field audit.

Once any of these three types of audits are completed, the IRS will mail you an examination report that will detail the findings of the audit and any changes that are to be made to your returns and with regard to your tax liability. At this point, you have 30 days to approve or disapprove of the finds. If you agree with the audit findings and approve, you may need to take action to fulfill the adjustments to your taxes, such as paying additional tax penalties. If you disapprove of the findings, then your attorney can assist you in taking action such as filing an appeal.

You should not fear the IRS audit process, no matter which type of audit is being conducted. With proper representation and preparation, you can help ensure that your audit does not become a tax nightmare. If you have received notice that you are going to be audited by the IRS, please call the law office of Morgan Maxwell today.

Written by E. Morgan Maxwell

E. Morgan Maxwell

Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.

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