https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits

Reasons for an IRS Audit

According to the IRS, certain returns are selected for audit because of issues or transactions with another taxpayer who was selected for audit. Occasionally, an inconsistency between the data entered for income statements may trigger an audit. And many returns are selected at random, based solely on a statistical formula.

The letter you receive will come from the Office of the Treasury, and will have a notice number in the upper right hand corner, near the date of the letter. This number will give you information about the types of forms you must gather.

The Types of Audits

The letter you receive should also indicate what type of IRS audit you have been selected for. Settling an audit can take a few days or take up to a few months, depending on the depth of the IRS audit. We at Heritage Income Tax advise engaging with a tax professional who specializes in IRS audit or debt relief services if you receive an audit letter.

Correspondence Audit

Correspondence audits occur through the mail, and tend to be simple – the IRS will request more information pertaining to the tax return, and the taxpayer simply mails in copies. Examples of items the IRS requests are checks, receipts and other documentation to support deductions or credits that you have claimed. If you have too many books or records to mail, you can request a face-to-face audit. The IRS will provide contact information and instructions in the letter you receive.

In-Person Audits – Office or Field?

An office audit is conducted in person at your local IRS office. You should be prepared to report to the office with copies of the requested documentation. In this circumstance, you may wish to bring along a tax attorney or tax specialist who may represent you before the IRS.

Field Audit

Like an office audit, a field audit is also conducted in person. Unlike an office audit, a field audit is conducted at your place of business or your home. During this visit, you should include your tax attorney or tax specialist. You should have your books and all documentation available for the agent to inspect. If your place of business is inside your home, you do not have to allow the IRS agents inside the home unless they have obtained court order. One reason they may wish to visit your home is you claimed a home office deduction. If you do not allow them inside your home, this particular deduction will likely be disallowed.

Taxpayer Compliance Program Audit

The IRS uses audits to assess the rate of overall taxpayer compliance in filing and paying taxes in a timely manner. The results are published on the IRS website under Federal Tax Compliance Research. This audit examines every aspect of your tax return and if you are asked to participate in such an audit, be prepared to present documentation including birth certificates.

How Many Audits Per Year?

You may be wondering, if I’m an honest taxpayer, why am I being selected for this stressful audit process? The most important thing to remember is not to panic. Very few taxpayers (less than 0.6% in 2016) are audited, and the threshold for being prosecuted for tax fraud is fairly high. If you receive an audit letter, do not hesitate to give our office a call. We can support U.S. citizens anywhere in the world.