Posted by Income Taxes and Bookkeeping LLC

Major Types of IRS Audits

Major Types of IRS Audits

The only thing we want from Uncle Sam is our tax refund. Getting any other correspondence, especially for issues like audit, does not augur well with most people. Problems with taxes alongside penalties can adversely affect a business' finances. 

If you receive an audit, make sure to prepare adequately and seek all the help you can get. There are, however, different audit types, as some could be pretty disturbing compared to others.

Here are the main audit types:

  1. Correspondence Audit

A correspondence audit is the most common type of IRS audit, and it accounts for ¾ of all audits from Uncle Sam. It is pretty simple and involves Uncle Sam sending you a mail (566 letters) requesting additional information about your return. 

This happens when the information on your record does not match what Uncle Sam has in their record. In this case, the taxpayer will get a CP2000 notice. Most times, it is a proposition for an adjustment of the tax return. 

It is compulsory to respond with a notice of agreement or disagreement. Any disagreement should be backed up with supporting documents within 30 days of receipt. Ignoring such a letter is not a good idea as it could trigger unwanted issues.


  1. Office Audits

In cases when Uncle Sam has questions about your return that a correspondence audit cannot take care of, there will be a notice requesting your presence at their office for an audit. An office audit is usually thorough and could be complicated. 

Most times, issues from office audits arise from itemized deductions, losses or profits in business, etc. A single problem with a schedule can lead to an audit, which can escalate if the auditor suspects that the return is full of issues. 

Office interviews involve questions about financiers, employment, and lifestyle to detect causes that might trigger an underreported income. One needs to be careful in the response and documents made available to the agents. It is pretty easy to give an innocent answer that could escalate the audit.


  1. Field Audit

This is the most comprehensive audit type. Uncle Sam will visit the home or business office to scrutinize records. This, most times, is the duty of revenue agents that are trained and knowledgeable with particular expertise in a specific field. 

The aim of visiting a business is to examine things beyond the records submitted. A business audit, for instance, will involve a financial record review, a tour of the facility, a review of the accounting procedures and control. A field audit might last from a day to a week, as it depends on the case's complexity. 

Field audits are pretty serious and intrusive. As a result, you are better off consulting a tax lawyer or professional to be present. Whatever you say can be targeted and be the reason for the expansion of the audit. A tax lawyer, however, can help avoid this.


  1. Taxpayer Compliance Measurement Program (TCMP) Audit

The idea behind this audit is to update the DIF score of Uncle Sam's data. DIF scores arise from examining a vast group of audits selected randomly for severe audits. 

With a TCMP audit, Uncle Sam will scrutinize every item on the return alongside the supporting documents. This audit is time-consuming as the taxpayer must provide checks, receipts, invoices, and bank statements for every item. All lines of the return are examined with documentation and not some things randomly selected. 

If you have been slammed with any audit, be calm, and maintain your composure. Get all supporting documents like receipts, invoices, and other information that relates to the tax return. They are primal to avoiding issues with Uncle Sam.


Why you should seek legal Advice 

Many taxpayers are not experienced with the IRS and as a result, there is a huge tendency to supply excessive information that could leave them worse off. Bear in mind IRS auditors are trained professionals with donkey years of experience. This makes it essential to consider hiring a tax professional to help with the process. 

A tax professional like INCOME TAXES & BOOKKEEPING, LLC,will ensure that you are well informed in how to resolve what could otherwise be an impossible task.



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