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What to Expect During an Audit Process

What to Expect During an Audit Process

Year in and year out, taxpayers are being audited to ensure they adhere to tax rules. Getting a letter from an auditor increases as your income increases. About 1 in 160 taxpayers with more than $500,000 are called for auditing, making it 1 in 12 if the gross income rises to $5,000,000. An audit process does not make you a suspect or criminal. The audit recording process is complicated and needs to be reviewed several times to get the financial data right. 

The process is referred to as an examination and can be called on for different reasons. The IRS could send an auditor if your tax filing teamed with other parties such as investors or partners. Some audits are done base on other factors such as:

  • Conflicting third party income according to 1099s or w-25

  • Deductions for home office

  • Rental losses

  • A vehicle used for a business

  • Fun-related deductions or hobby losses

  • Hard currency transactions or transactions in bank

Common Types of Audits

Most audits are done through the mail, which is considered minor audits. But more severe audits are performed in person and can take some time to finish. There are three types of audit.

  1. Correspondence or Mail Audit – corresponding audits are done to correct mathematical errors and missing paperwork.

  2. Office Exam Audit – usually conducted in an IRS office to determine if all income is reported and the deductions are legal.

  3. Field Audit – a field audit is for severe cases. An agent is sent to your home, business, or accountant’s office to evaluate the reports and confirm the corresponding tax return information. 

Preparing for an Audit

The IRS office, via mail or telephone, will send a message with the areas to be audited and the required papers needed. 

The office will permit 30 days for you to prepare for the audit. Do not ignore the response as that may attract extra interest to the initial amount.

Start your preparation with the necessary paperwork, study and understand the problem and determine if you can handle it or need a representative. 

Prepare the forms requested by the IRS. The forms should be in copies, organized, and correspond with the year under audit. If there is an error or a misplaced record, quickly replace them with duplicates.

The IRS office may request some documents such as

  • Home mortgage papers

  • Past tax return papers

  • Receipt from other tax activities

  • Brokerage papers

  • Retirement account plans

  • Pay stubs


If the case is too much to handle, a tax professional will do it easily by reviewing your document and ensuring you understand the mistake. If your tax is done online, the tax company may assign an audit defense to represent you for a fee. 

Disputing IRS Audit Results

The taxpayer has the last say in an audit process. If the audit is not satisfactory, you can request any of the following:

Conference with the Auditor’s Manager

The request is made informally via a phone call to the manager. This step is the simplest and works best if the auditor is inconsiderate of the taxpayer’s documentation. If the manager is unavailable, there are other channels to engage to get your issue to Uncle Sam. 


Fast Track Settlement Process

The fast-track settlement process involves an Appeal Officer who acts as the mediator between the taxpayer, the auditor and his or her manager to reach an agreement. 


Formal Protest with IRS Appeals Division

The third step is like a formal protest with the IRS Appeal Division. The process is conducted by a skilled IRS tax controversy officer who drafts the letter and attends the appeal conferences. 


Take the Dispute To Court

The final step is taking the case to court by the taxpayer. The taxpayer can choose a representative or represent himself or herself in court. The tax court is open to hearing tax disputes and proceedings. 


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