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Either in a random statistical selection or in a related examination (when your returns involve other audited taxpayers), the IRS may notify you of an upcoming tax audit.
Although most times it is only to make sure the information you provided is correct or to request additional documentation, an IRS audit is source of stress and anxiety and the process somewhat unpredictable. Your best defense is to trust tax professionals to represent you and handle all communications on your behalf. Our Enrolled Agents have years of experience dealing with income tax audits and know what to expect and how to respond to auditors.
IRS Letters / Correspondence
A common way the IRS manages income tax audits is by mail, first notifying you that you have been selected for an audit and giving instructions as to what they need.
In some cases, the IRS conducts the audit through in-person interview at an IRS office (office audit), or at your home, place of business or accountant’s office (filed audit).
We have years of experience communicating with the IRS.
IRS Letters / Correspondence
IRS audits are usually nothing to get worried about and can get resolved quickly.
The IRS gives you 30 days to respond to a correspondence audit. This audit can usually be resolved by sending correct documentation through the mail.
Field audits are more complex and only conducted by Revenue Agents with accounting degrees and a high level of training in a specific industry. During a field audit, these agents will determine if all income was included in a tax return and whether or not deductions were in compliance with the Internal Revenue Code. Revenue Agents may even look into lifestyle expenditures to see if they exceed a taxpayer’s reported income or not.
In all cases, an IRS Audit is not to be taken lightly so matters don’t get worse. You should never ignore a notice nor any correspondence.
Typical items the IRS needs to verify are itemized deductions, alimony, moving expenses, or third-party information such as W-2, miscellaneous income or mortgage interest statement.
If you need more time to gather the information the IRS requested, they may grant a one-time 30-day extensions for Correspondence Audits.
For Field Audits, you or your tax representative must request an extension form the assigned auditor.
Statute of Limitations
An IRS audit may go as far back as 3 years of tax returns, up to 6 years in case of substantial errors. By law, you must keep records for at least 3 years from the date a return is due or filed (whichever is later). If the extension covers a period for which you have no documentation, the auditor will base his decision on what you can provide.
There can be 3 conclusions to an IRS audit.
- No change: all items reviewed do not amount to any changes.
- Agreed: the IRS proposes changes you agree to.
- Disagreed: the IRS proposes changes with which you disagree. In that case you may file an appeal.