Hearing the word ‘IRS audits’ can make even the toughest people break out in a sweat. But a little understanding about what these audits are – and how the IRS works – might help ease some of your worries.
As your dedicated Mount Pleasant NC CPA, Susan Gordon Lee wants to help you better understand the different types of IRS audits. In this article, we discuss the different types of IRS tax audits.
1. Correspondence Audits
As the name implies, correspondence audits are sent through written correspondence (the mail). Correspondence audits are the lowest level (and least serious) auditing performed by the IRS. In a correspondence audit, the IRS sends a written request for more information. This is about a particular issue or item on a taxpayer’s tax return.
Correspondence audits can result from:
- A math error on your tax return (i.e. you meant to report $1,500 in income, but only reported $500 so you owe taxes on the omitted $1,000).
- An omission of income on your tax return that has been reported to the IRS on another form (i.e. on your 1099 Form or W-2 Form).
In a correspondence audit, as long as the taxpayer can provide enough evidence to resolve the issue, the procedure will be closed. When answering a correspondence audit, we recommend keeping your answers as simple as possible. Don’t offer any other extra information, as that could allow the agent to expand the scope of the audit.
2. Office Audits
When they have more questions about the items on your tax return, the IRS may request an office audit. This is a full-fledged audit and is more serious than a correspondence audit. You’ll receive a letter summoning you to a designated IRS office on a particular date. The appointment can be scheduled according to your convenience, as long as the IRS agrees.
In an office audit, an IRS representative interviews the taxpayer and inspects their records in person. The purpose of an office audit is to ensure that the taxpayer is accurately reporting their income. And their deductions and paying the lawful amount of tax.
Usually, office audits cover only a few specific issues identified by the IRS as indicated in a written notice to the taxpayer. This notice also identifies which documents and records the taxpayer should bring for a more thorough review.
Most of the time, an office audit can be completed in one day; but, the agent can request more information. If this happens, you will be given more time to gather any extra documentation.
3. Field Audits
Field audits are more serious and extensive than both correspondence and office audits. In a field audit, an IRS agent will come to you either at home, your place of business (if you’re the owner). Or your accountant’s office and conduct the audit in person.
In a field audit, the agent isn’t limited to a list of things they’ve previously received from you. In fact, they may ask to check any number of other documents and records during the audit. Field audits are usually scheduled for more complicated audits and can be very intrusive. Moreover, when auditing businesses, the agent will also interview employees about key business operations. This includes management structure and accounting procedures, to name a few.
If you’re facing a field audit, you shouldn’t be alone – have an experienced tax attorney or Mt. Pleasant North Carolina Accountant by your side – at the time of the audit. This is especially important if there have been any understatements of income. Or if false/misleading information in your tax return.
Navigating IRS Audits
Whatever type of IRS audit you’re facing, it’s important to be proactive. Get organized and prepare to defend your tax return. Use proper documentation and evidence.
One of the best steps you can take to ensure a successful audit is to work with an experienced tax attorney or CPA. A good tax attorney or CPA will know exactly how to handle the audit process. They will help you navigate it with confidence.