Not all IRS audits are the same. Not all tax return issues involve the same complexity or require the same level of scrutiny.
The IRS, in its effort to enforce the income tax laws of the Unites States, has three different types of audit examinations in its arsenal:
- Correspondence examinations
- Office examinations
- Field examinations
Correspondence examinations are conducted entirely through the mail. (The IRS NEVER uses e-mail to correspond with taxpayers.) Since this audit requires less involvement from IRS examiners it is being used more frequently by the budget strapped IRS. This method is considered the ‘work horse’ of the IRS’s tools.
Office examinations involve small businesses or individual income tax returns that predominantly include sole proprietorships. Office examinations generally take place at the IRS office located nearest to where the taxpayer maintains its financial records. Once the IRS has selected a tax return for office examination, the return is assigned to an examiner and scheduled. Office examinations are conducted primarily by interview. The taxpayer will provide certain records to support the items on the tax return. During this process, an examiner might ask a taxpayer to explain certain items such as insufficiently substantiated charitable contributions or itemized deductions which appear to be disproportionate to the taxpayers reported gross income.
Field examinations are initiated by sending a letter 2205 or 3572 which lays out the issues to be examined and lists a specific IRS agent as the point of contact. Sometimes the taxpayer will receive a telephone call from the field agent prior to receiving the letter. The taxpayer has 10 days to schedule an interview.
It is advisable to have your CPA represent you with any IRS interaction. This will ensure that the audit will be conducted in an efficient manner and that any adjustments are verified and agreed to by your CPA representative.
Things to remember: There is a 3 year statute of limitations on all tax returns filed with the IRS. (beginning with the date of filing)