The audit process begins when the IRS requires more information about your tax return, but what happens after that all comes down to the type of audit you’re getting.
There are four varieties of audit, depending on the seriousness of your case, and they range from a mailed request for information to a financial inspection in your home or place of business. Read on to learn about the procedures of each audit, as well as your appeal rights and when to seek the help of tax professionals, so you can navigate this process more confidently.
As the least severe type of audit, the correspondence audit occurs when the IRS has a simple request for more information about a portion of your tax return, such as charitable deductions, alimony, moving expenses, casualty losses, or employee expenses, to name some common examples.
As their name might suggest, these audits are often conducted via mail correspondence. They have become more common over the past few decades — in fact, more than 75% of audits are correspondence audits.
Tax professionals agree that as long as you have receipts and other information the IRS requests, you should feel comfortable responding on your own with no outside assistance. However, if you no longer have the receipts or information requested, call a professional who can help you avoid fines, interest, and penalties. You should also seek professional assistance if you disagree with the assessment made by the IRS in the correspondence.
Occasionally, the IRS randomly assigns an unannounced audit to a citizen – not in order to try and find anything illegal or in error, but rather to research which areas are likely to produce additional taxes.
Random audits from the IRS have become the norm in many industries beyond federal tax collection, after high-profile financial scams such as the Bernie Madoff Ponzi scheme scandal.
You might choose to handle this audit yourself, particularly if you are diligent in your receipt-keeping and other paperwork. If you are nervous about any part of your return, or lack the documents needed for the IRS, hire a tax professional for support.
Should the IRS have specific questions regarding your tax return, you may receive a letter in the mail requesting you to visit a local IRS office for a thorough audit. Most office audits focus on individual returns because they are not as complex. For instance, an IRS agent may desire proof of travel expense deductions or educational expenses.
Typically, an office visit concludes in one day; any additional information can be supplied by you at a later period. The letter you receive from the IRS will define which records you need to bring to the office audit, and you don’t have to volunteer any additional records outside of this scope.
As this is one of the more serious forms of auditing, it’s best to seek assistance from your tax preparer or accountant in preparation for your visit to the IRS office. You may also consider hiring a tax attorney for more in-depth and personalized assistance navigating your audit.
The most severe type of audit is the field audit, wherein an IRS auditor will physically visit your home or office to see certain financial information. However, you may request that your field audit take place at your accountant’s office, if that’s what you’d prefer.
No field audit should be undertaken on your behalf without some form of representation. As the most serious interrogative path IRS auditors can take, you should assume that they are looking for specific information to penalize you. This comprehensive examination should not be taken lightly, and you and your tax attorney should review your return thoroughly in order to best prepare for this type of audit.
Appealing Your Audit
When you are summoned to an office audit or receive a field audit, the agent will explain your appeal rights at the beginning of the audit.
You have 30 days to consider your appeal options and alternatives. If you disagree with the audit’s outcome, you may request a further conference with the agent’s manager. You may also appeal to the U.S. Tax Court, the U.S. Claims Court, or your local U.S. District Court.
If you choose to appeal to the U.S. Claims Court or your local U.S. District Court, you will likely have to pay the tax and any administrative refund claims that have been denied by the IRS. However, you do not have to pay the tax first if you appeal to the U.S. Tax Court.
Still have questions and concerns? Contact Milikowsky Tax Law and schedule a free consultation with one of our experts to discuss your IRS audit.