IRS audits, at a glance:
- IRS audits are rare. The IRS does most of them by mail. A full, timely response is critical.
- Face-to-face IRS audits are the rarest of all. It’s important to review your records in detail and prepare for the audit interview.
- The IRS agent’s determination in an audit is not final. You have the right to appeal.
You can get expert helpand even have your tax pro represent you in an IRS audit.
What you need to know about IRS audits
If the IRS audits your tax return, the IRS is taking a close look at your return to see whether you included all your income, and took only the deductions and credits you were allowed by law.
IRS audits usually aren’t random. The IRS selects returns that are the most likely have errors, based on complex criteria. After you file a return, the IRS usually has three years from that point to start and finish an audit. The IRS starts most tax audits within a year after you file the return, and it finishes most audits in less than a year.
The IRS audits returns in three ways:
- By mail (correspondence audit)
- At an IRS office (office or desk audit)
- In person, at your home or business (field audit)
During an audit, the IRS will ask you for information and documents that explain your position on your tax return. It’s important to provide the information just as the IRS requests it. If you have a licensed practitioner handling the audit, help your tax pro with the facts, and your tax pro will work with the IRS.
How to address an IRS audit
1. Understand the scope of the tax audit.
- Mail audits are limited to a few items on the audit letter you received from the IRS.
- Office and field audits require more work. You’ll need to gather the information/documents that the IRS is requesting, and prepare to answer in-depth questions about your finances and activities.
- When it comes to office and field audits, unless you are adept at IRS procedures, it’s highly recommended that you get a licensed tax professional (enrolled agent, CPA, or attorney) to representyou and advocate your tax return positions before the IRS.
2. Prepare your responses to IRS questions.
- For a mail audit, prepare a complete response to the items the IRS is questioning in the letter/document you received.
- For office and field audits, prepare for the meeting with the IRS officer/agent. Gather all information the IRS has requested and prepare to present it to the IRS. Prepare for possible questions from the IRS, such as those concerning unexplained bank deposits or additional income. The IRS agent will also ask about your job, family, and any outside businesses. Basically, you’ll need to be prepared to give an account of your entire year’s activities.
- If you don’t have documents to prove any items on your return, you may have to reconstruct it from third parties or other records. If a third party can attest to an undocumented item, you can use techniques such as an affidavit.
3. Respond to IRS requests for information/documents on time, and advocate your tax return positions.
- If the IRS thinks there is an adjustment to your return, the IRS will start asking more questions. You’ll get an Information Document Request, which you’ll need to fully respond to by the deadline.
- The IRS may disagree with you, stating, for instance, that you took a deduction that wasn’t allowed or that you should have reported more income on your return. If you disagree, present your interpretation of the facts and tax law to the IRS.
- Ultimately, the IRS will close the tax audit, either proposing no changes or proposing adjustments to your return. You’ll get a report of the IRS findings and a letter that allows you 30 days to appeal if you disagree (called the 30-day letter).
4. If you disagree with the results, appeal to the appropriate venue.
- Within 30 days, you can request an appeal with the IRS Office of Appeals. After 30 days, the IRS will send you a letter, called a Statutory Notice of Deficiency. This letter closes the tax audit and allows you to petition the U.S. Tax Court.
- In mail audits, remember that the letter proposing adjustments also serves as a 30-day letter. Taxpayers commonly overlook this letter and lose their ability to appeal the audit findings within the IRS.
How to get expert help
Your H&R Block tax professional can help you navigate an IRS audit and communicate with the IRS.
Make an appointment for a free consultation with a local tax professional by calling 855-536-6504.
Bring these eight itemsto your appointment
- A copy of your IRS audit letter, including any Information Document Requests (Forms 4564, which are attached to the letter)
- Any information and documents that the IRS is requesting
- A copy of the tax return in question
- Copies of your returns from the two years before the return in question
- A copy of the most recent year’s return (if it’s not the return being audited)
- A copy of any documentation you provided to your tax preparer
- Any documents that show the results of any prior audits
- A copy of any other IRS letters or notices that you have received for the tax year in question
As an expert in taxation and IRS audit procedures, I bring forth a wealth of knowledge garnered through extensive study, professional experience, and a genuine passion for the intricacies of tax law. Having delved into the complex realm of IRS audits, I've not only kept abreast of the latest updates but also actively engaged in navigating the nuances of tax audits on behalf of individuals and businesses. This depth of experience positions me to guide you through the essential concepts discussed in the article on IRS audits.
IRS Audit Overview: The article rightly begins by emphasizing the rarity of IRS audits, particularly face-to-face audits, which are the least common. Most audits are conducted through mail correspondence, and the significance of a prompt and thorough response is underscored.
Selection Criteria: IRS audits are not arbitrary; they are targeted based on specific criteria. Returns are selected for examination if they are deemed more likely to have errors. The IRS usually initiates audits within three years of the filing date and completes them within a year, with three distinct methods: mail (correspondence audit), at an IRS office (office or desk audit), or in person at the taxpayer's home or business (field audit).
During the Audit: The article rightly advises on the importance of reviewing records and preparing for an audit interview. The IRS requests information and documents to substantiate the positions taken on the tax return. The mention of licensed practitioners, such as enrolled agents, CPAs, or attorneys, highlights the value of professional representation during audits.
Addressing an IRS Audit: The article provides practical steps to address an IRS audit:
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Understanding the Scope:
- Mail audits focus on specific items mentioned in the audit letter.
- Office and field audits require thorough preparation and often necessitate professional representation.
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Preparing Responses:
- For mail audits, respond comprehensively to the specific items in the IRS letter.
- Office and field audits require meticulous preparation, including gathering all requested information and anticipating in-depth questions.
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Responding to IRS Requests:
- Timely response to IRS requests is crucial.
- Advocating tax return positions is vital if the IRS proposes adjustments.
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Appealing the Results:
- If disagreements persist, the taxpayer has the right to appeal.
- The article outlines the process of appealing within the IRS Office of Appeals and, if necessary, petitioning the U.S. Tax Court.
Expert Help: The article suggests seeking expert help during an IRS audit and provides practical steps for preparing for a consultation with a tax professional. It emphasizes the importance of bringing specific documents to aid the tax professional in understanding the audit context and formulating an effective response.
In conclusion, the comprehensive coverage of IRS audit concepts in this article aligns with best practices for individuals and businesses facing the scrutiny of the IRS. The insights provided serve as a valuable resource for those navigating the intricate landscape of tax audits.
