If you are the adventurous type, the audit process with the Internal Revenue Service can be viewed as a battle: you develop a strategy, prepare, and work toward accomplishing the objective. At times that can mean resolving your audit without additional tax liability. Other times a realistic goal is merely mitigating potential tax liability. Either way, equipping yourself with fundamental knowledge is always a good idea to begin your preparation for an IRS audit.
3 Types of IRS Audits
The IRS handles audits in three different ways: correspondence, office, or field. The most common and preferred by the agency is a correspondence audit, which is done via mail. The thing is, the IRS won’t notify you beforehand about the start of a correspondence audit–it will just come as an unpleasant surprise. Nonetheless, consider yourself lucky because this type of audit is the least stressful of the three.
Correspondence Audit
Correspondence audits usually result from amended tax returns; say you previously omitted income or overlooked a small amount of interest. Once you receive first-class mail from the agency, they will ask you to mail back the documents and information needed instead of physically meeting you.
The general tip is to be compliant and submit the photocopies of whatever file they request after consulting with an audit defense attorney. If you have concerns with the auditor, you can ask if your documents can be transferred to your local IRS office so you can schedule an appointment with them. In some cases, mail audits transferred to local IRS offices end up being closed with no adjustment and without any heads up.
Office Audits
Meanwhile, office audits happen when you receive an IRS letter requesting a scheduled appointment. The mail would indicate the year you are being audited for, along with certain documents you are expected to bring with you during the audit, which includes checks and receipts.
IRS might also send a list detailing the areas they are looking to examine, like interest expenses, charitable contributions, and rental property income.
Field Audit
Finally, the deadliest method, field audits, occurs when the IRS seeks to invade your home base (office or household) where they will conduct the examination. In this process, the IRS sends auditors. Targets of field audits are usually large income earners, self-employed, real estate owners, or those suspected of tax fraud. Corporate, estate and trust tax returns are also audited in the field.
The MVPs that the IRS sends during field audits may hold degrees in accounting or at least 24 semester hours of accounting courses. When they are trained for auditing, the auditors become similar to detectives, learning how to find clues and distinguish whether your tax return is accurate or inaccurate.
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