The thought of an IRS audit elicits fear in every taxpayer. While IRS audits may not be commonplace, if you are one of the unlucky few to receive an audit notice from the IRS, it will likely cause you stress, worry and panic. With 90 percent of audits resulting in a change to the tax return that was filed, these feelings are understandable. To get the best results in an audit, you need to understand the types of IRS audits, your appeal rights from the audit and when you should get help from a professional.
Types of IRS Audits
There are four main types of IRS audits. All of these audits begin with the IRS sending a letter to the taxpayer notifying the taxpayer that their tax return is under examination.
- The Correspondence Audit. This type of audit is fairly common. As the name suggests, this type of audit is handled through the mail. In this type of audit, the IRS will request documentation to support deductions, credits or other positions taken on the tax return.
- The CP2000 Examination. This type of audit is also referred to as an underreporter audit and results when there is a discrepancy between the income reported to the IRS – on Forms W-2 and/or Forms 1099 – and the income reported by a taxpayer on their tax return.
- The Office Audit. In this type of audit, the IRS will send a letter requesting the taxpayer come in and meet with an IRS office auditor at an IRS office location. This type of audit requires a taxpayer to bring documentation to the meeting to support the items under examination by the IRS and generally requires a taxpayer interview.
- The Field Audit. In this type of audit, an IRS Revenue Agent will come to a taxpayer’s home or place of business to conduct the audit. This type of audit is more intrusive and is not limited in scope. The taxpayer will be required to provide documentation to support all of the items the Revenue Agent is examining and other items that may arise during the course of the audit. It is not uncommon for the field audit to be expanded to other years and other entities that the taxpayer may be involved in.
When To Get Help
If you are being audited by the IRS, you should consider hiring a tax professional as soon as you receive the initial audit letter. Do NOT try to handle this on your own. The best course of action is to speak with an experienced tax attorney before contacting the IRS. Keep in mind, accountants, enrolled agents and tax return preparers do not have attorney/client privilege. Tax attorneys experienced in IRS audits will be best able to help you prepare for the audit, to clearly communicate your position with the IRS, to protect your rights and to assist you in resolving your tax audit through all stages of the audit process, including audit, appeal, and litigation.
First and foremost, know that the determination of the auditor or Revenue Agent is not final – it is just a proposed increase in tax, penalties and interest. If you do not agree with the auditor’s findings, you do have appeal rights. But you will lose these appeal rights if an appeal is not timely filed with respect to the type of determination issued by the IRS.
- When the IRS issues a Letter 915 with the examination report, you have 30 days from the date of the letter to appeal the determination to the IRS Office of Appeals. If you do not file an appeal to the Letter 915, the IRS will issue a statutory Notice of Deficiency.
- From a statutory Notice of Deficiency, you have 90 days to appeal the determination to the United States Tax Court.
An experienced tax attorney can help you understand your appeal rights and what avenue of appeal would be best for your case. Having the right attorney representing you and protecting your rights will make a significant difference in your wellbeing and in the resolution of your case.