audits

What is an IRS Audit?

An IRS audit is a thorough examination of your tax account and financial information to ensure that figures are reported correctly and that you’re adhering to tax laws. As tax returns are filed they are compared to the average figures for other accounts in this category.

If your figures seem to be elevated, or show anomalies, your return is put into a pool of other returns and randomly picked for more in-depth review by an experienced auditor. After a review, your return may be accepted and filed away, or the return is forwarded to an examining group for further analysis.

1.  Correspondence Audit-  A correspondence audit is an audit which is conducted entirely through mail. It is the lowest level of IRS audit and typically focuses on simple errors in the taxpayer’s return. In a correspondence audit, the taxpayer receives a letter from the IRS requesting information and the production of certain documentation. The letter most commonly associated with a correspondence audit is IRS Letter 566 (CG). In these letters, the IRS will ask questions about specific items on the tax return, such as income, expenses, and itemized deductions. The taxpayer should respond to the letter in a timely fashion, the correspondence audit is by far the most common of all IRS audits 
2. Office Audit-  If the IRS has more questions about your return, then you’ll get a letter in the mail inviting you into an IRS office for the audit. The office audit is more serious, so you may want your tax preparer, accountant or tax attorney to come with you.  An office audit is a face-to-face examination conducted at an IRS office. This is a comprehensive type of IRS audit, often involving a thorough examination of many items on a return. The revenue agent will provide you with a list of documentation that you will need to have available for review.  At the end of the audit the revenue agent will give you an audit report that details the proposed changes to the tax return. You have the right to dispute the changes if you disagree with them. 
3. 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.
4. Random Audits- The IRS isn’t looking for anything in particular when they perform these random reviews and will simply look at your return for inaccuracies and discrepancies. These reviews are generally performed via a correspondence letter with notice that your account is being looked over. Usually you won’t receive a follow-up letter if the review of the return doesn’t result in any red flags. In this case you shouldn’t be too alarmed as the IRS agent isn’t looking for anything in particular.

Once any of these four 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.