There are at least three types of IRS examinations or audits: the correspondence audit, the in-person audit, and the office audit.
These three types of examinations or audits, however, should not be mistaken for the four different types of assessments:
Summary Assessment
“Quick and prompt,” as the IRS chooses to describe it, a summary assessment is done internally, manually, and summarily by the IRS for one of two reasons: either the statute of limitations is about to expire, or collection is at-risk.
A summary assessment is made summarily, rather than promptly, as the literal meaning of the word implies. This means that the IRS may make a deficiency assessment based on the amount of the tax return alone, based on mathematical errors, clerical errors, the amount paid, or tentative adjustments.
This is in contrast to the normal assessment process of notice to the taxpayer and an attempt at negotiation with the taxpayer before a deficiency notice is issued. In a summary assessment, the IRS can issue a statutory notice of deficiency based on its internal assessment without the need for prior notice to the taxpayer.
A summary assessment cannot be made, however, when it comes to income taxes, estate taxes, gift taxes, and certain excise taxes.
Deficiency Assessment
A deficiency assessment, on the other hand, can be utilized when it comes to income taxes, estate taxes, gift taxes, and certain estate taxes. A deficiency assessment, as the name indicates, indicates a deficiency in a taxpayer’s return that, after the appropriate audit, determines or assesses the amount of the deficiency in income taxes for which the taxpayer owes back taxes.
In simple terms, a deficiency assessment determines the amount of any additional income tax that is still owed by a taxpayer. For instance, if the taxpayer reported income that does not match the income reported by his employer or other sources, a deficiency notice is issued and the deficiency assessment begins. Once the amount of back taxes is determined, a notice of liability is issued.
Unlike a summary assessment, however, deficiency assessments have to conform to deficiency assessment procedures, which include the issuance of a notice of deficiency to the taxpayer, with the opportunity to bring a petition to the Tax Court
Deficiency assessments have a statute of limitations of 3 years from the date the return was filed.
Jeopardy Assessment
Similar to a summary assessment, a jeopardy assessment is used when there is a need for immediate action if following the normal assessment procedures would negatively impact the collection process. Unlike summary assessment, however, jeopardy assessments can be used when it comes to income taxes, estate taxes, gift taxes, and certain excise taxes.
Some of the grounds for the IRS utilizing jeopardy assessment when it comes to a taxpayer would include:
- A plan by the taxpayer to leave the United States
- A plan by the taxpayer to remove his property from the United States
- Concealing property
- Actions by the taxpayer that could prejudice collection or render the proceeding ineffectual
- Dissipation of assets
- An indication that the taxpayer is not financially solvent
If the tax type is subject to the usual deficiency procedures, the assessment is done after the due date of the return. This refers to income taxes, estate taxes, gift taxes, and certain excise taxes. Any other tax type can be assessed regardless of the due date of the return.
Termination Assessment
A termination assessment is similar to a jeopardy assessment in the sense that it can also be made immediately based on similar circumstances that could negatively impact the collection process.
The primary difference, however, is that termination assessments are made even when the due date for the return has not yet passed. When a termination assessment is conducted, the taxpayer’s tax year is “terminated” immediately, and the IRS is authorized to assess and collect the tax for the part of the year that has elapsed as though it were a complete tax year. This is usually done in cases when it seems highly questionable that the suspect of a crime will actually pay taxes on his earned income.
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