August 28, 2014

The main purpose of an IRS audit is to determine whether you owe more in income taxes than you have already paid. Understanding that basic point puts you that much ahead of the game.

Correspondence Audits

Correspondence audits almost never expand into full-blown audits. Read the letter from the IRS carefully and provide photocopies of documentation to support any credits or deductions that you have claimed. Answer the questions as thoroughly as possible, but do not volunteer information that is not requested. Having a tax professional check over your documentation and response before you mail it back to the IRS is a good idea.

In-Person Audits

The IRS conducts two types of in-person audits: interview audits at a local IRS office and field audits conducted at your home or place of business. For audits conducted at an IRS office, you are expected to provide copies of tax records and deductions for the years listed in the audit notice. The agent will go over your records, asking questions about particular deductions or credits that you have claimed. Field audits are conducted much like interview audits, except that the IRS agent comes to your home or office.

In both instances, if you hired a professional to prepare your returns, he or she can and should represent you at the audit. You may also hire a professional such as an attorney from Optima Tax Relief to go with you to the audit even if you prepared your own return; in fact, it strongly recommended. Just as with a correspondence audit, you should be as transparent as possible concerning the questions asked by the IRS agent. Again, do not volunteer information the agent has not requested.

Audit Determinations

There is no set duration for an audit. There are three possible conclusions to an audit.

  • No change: you successfully defended your deductions and credits to the IRS agent and owe no additional taxes
  • Agreed: The IRS agent concludes that you owe additional taxes, and you agree with the results of the audit
  • Disagreed: The IRS agent concludes that you owe additional taxes, but you disagree with the results of the audit.

If you agree with the results of the audit, but cannot afford to pay what you owe, don’t panic. You won’t wind up leaving the audit wearing a barrel. The IRS is usually willing to work with you to create an installment agreement or some other repayment schedule that you can live with.

If you disagree with the audit, you can request another review of your results. You may also request mediation or file a formal appeal. If those attempts fail to yield a satisfactory result, you may file legal action with the Tax Court.

Additional Tax Tips:

The IRS Criminal Investigation Process
What to do during an IRS Audit
What does the IRS look for in an audit?
IRS penalty and interest rates