Certain individual non-business returns with low and medium adjusted gross income can be handled effectively by correspondence audit. All other returns selected for examination are better handled either as an in-IRS office examination or at the taxpayer's place of business. Correspondence examinations are performed at IRS campus locations by tax examiners, who are GS-5, 6, 7, or 8.
The IRS currently employs tax examiners conducting correspondence examinations of simple individual Form returns. Generally, the questionable issues are EITC, additional child tax credit, American opportunity tax credit, medical expenses, contributions, taxes, or employee business expenses.
Tax examiners receive training on these issues but are not required to have accounting skills. An additional tax examiners conduct correspondence examinations of non-resident alien returns Form NR focusing generally on withholding. Correspondence examinations are less burdensome for taxpayers than in-person audits as they mail in their documentation and don't have to travel in or take a day off from work to visit an IRS office.
TCOs receive more training than tax examiners and have some accounting training. An audit by a TCO generally requires an in-office interview of the taxpayer but doesn't require an on-site inspection of the taxpayer's books, records, or assets. The types of issues selected for an office audit are income from tips, pensions, annuities, rents, fellowships, scholarships, royalties, and income not subject to withholding; deductions for business related expenses; deductions for bad debts; determinations of basis of property; capital gain versus ordinary income determinations; and complex miscellaneous itemized deductions such as casualty and theft losses.
The most complex returns, which are certain individual, corporate, and partnership returns, are audited by a Revenue Agent RA at the taxpayer's place of business.
Revenue Agents are our most highly trained and experienced employees with substantial accounting skills and are GS-9, 11, 12, 13, and Their skills are required due to the complex business transactions of the taxpayer, more voluminous records, and extensive time required to complete the audit.
In addition, the issues involved in a RA audit may require assistance from a specialist, such as an engineer, economist, or appraiser. Since these are the most costly examinations conducted by the IRS, RAs are directed to the most egregious noncompliance areas. These include high income, high wealth taxpayers, cash intensive businesses, transfer pricing, executive compensation, research and development credits, crypto currencies, partnerships and flow through entities, micro captives, offshore transactions, and syndicated conservation easements.
The IRS has experienced significant attrition in examination resources since As a result, audits have declined across all income levels. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. The word " audit " can make anyone break out in a sweat, but a little understanding about what it is and how the Internal Revenue Service IRS works may make you more comfortable.
Some audits are no big deal; some can be onerous. So dry your brow, and let's begin. As the name implies, correspondence audits are handled through written correspondence; the mail. The first type of correspondence is a simple letter sent to you by the IRS to claim you owe the government money.
A simple letter from the IRS can result from:. If you get such a letter, you can agree that the fault was yours and pay the bill taxes, interest , and, in some cases, penalties , something you can decide yourself if the mistake is obvious and wholly yours.
Or you can disagree and proceed to further examination of the specific items in contention which may continue to be handled by correspondence or on the telephone. The second type of letter you may get from the IRS is one asking for certain documents to support a deduction or other position taken on your return.
Maybe the IRS wants to see a written acknowledgment from a charity for a donation you made and deducted; maybe you need to supply a canceled check or credit card receipt for another deductible expense. Mailing in the requested proof can easily resolve the issue. You can continue to argue your point through IRS channels all of which will be spelled out in further correspondence from the IRS , and ultimately litigate if the issue is significant enough to justify your time and the cost of a professional if you choose to have representation.
Note: If you paid a pro a CPA or other accountant to prepare your return, they can deal with all this as your representative, but may charge by the hour for this service. If you used tax return preparation software, you may have audit representation if the program gave it to you or you bought it. The IRS may want to interview you in person regarding specific items on your return.
An audit may result in no change to your return, or a finding that you owe taxes, or even a finding that the IRS owes you a refund.
An unfavorable initial determination by the IRS agent you meet with is not necessarily final. You have a right to appeal it and, if still not satisfied, go to court. These are often mail and office audits related to questionable items on your return. The most comprehensive IRS audits can start later. These are called field audits , when the IRS visits you or your business. Dealing with the IRS in an audit can be difficult.
The best course of action is to respond on time, thoroughly, and advocate your tax return position. One complete response, sent on time to the IRS, will avoid confusion and lead to the best results. IRS audit procedures can be complicated and almost impossible to navigate successfully. You should expect to pay a few hundred dollars for a mail or office audit for a tax pro to represent you.
Field audit representation is likely more expensive because your tax professional will be spending a lot of time with the IRS. Or get help from a trusted IRS expert. Learn what the IRS is looking for during an audit, the steps you should take to prepare for an IRS audit, and when it's best to get expert help. Learn the three main benefits of engaging a power of attorney to research your IRS account and resolve your tax problems.
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