The correspondence, office, field, andTaxpayerCompliance Measurement Program audit are types of theInternal Revenue Serviceaudits. TheseIRStax auditbegins when the commission requests more information ontaxpayers‘ returns. The kind of audit you get determines the result. In this article, we discuss the differenttypes ofIRS audits. We will also briefly touch on theIRSauditprocesstimelinewith each audit type.
IRScorrespondence audit
TheInternal Revenue Servicecorrespondence audits, also known as a Campus Examination, represent nearly 75% of the commission’s tax investigations. The IRS comes across various concerns, problems, and issues with corporate and individualtax returnsthat require a solution.
While IRScorrespondence auditsare the most basic type, they resolve fewer technicaltax issueswith individuals and organizations. ThisIRS audittype is typical for non-profit and philanthropic companies with simple matters involving small amounts.
As the name implies, theInternal Revenue Serviceconductscorrespondence auditsvia mail. Moreover,correspondence auditshelps the IRS quickly resolvetaxpayers‘ return problems through the mail or telephone.Taxpayersreceive a 566 letter with aSchedule Cform requestingadditional informationon returns from home office expenses or charitable donations.
For example, the IRS may request your auto expense receipts to verify your claims and justify your deduction. TheInternal Revenue Servicerequest to evaluate and verify your documentation and receipts for accuracy. TheInternal Revenue servicewill closecorrespondence auditcases when thetaxpayerprovides adequate proof to resolve the issue.
The commission givestaxpayers30 days to respond. Failure to reply may result in penalties, fines, and interest. Usually, you’ll get another letter detailing the commission decision with an appeal option after the letter with accurate documents and evidence.
Manytaxpayersget scared at the mention of the word “audit,” but the IRS only wants additional evidence to ensure accuracy. Whilecorrespondence auditsare straightforward,taxpayerscan complete the process three to six months after providing the necessary evidence.
After receiving a notification from the commission, consider visiting atax attorneyif you’re unsure of the best way to respond. Hiring atax attorneymay be your best solution for professional advice on handling thecorrespondence auditletter.
Manytax professionalsbelieve that you have zero problems after receiving this letter of documentation if you didn’t commit anytax fraud. But if the reverse is the case, atax attorneycan help you avoid penalties, interest, and fines from the IRS. While the IRS handlescorrespondence auditsvia mail, below are letterstaxpayersreceive:
The Simple Letter
Taxpayersreceive a simple letter from theInternal Revenue Servicedetailing the debts owed to the government. While this message is not a technical audit, it requires a response for a quick resolution. This IRS letter can result from an omission of income or a math error on yourtax return, which we will discuss further.
- Math Errors
The commission might send a simple acknowledgment letter if you made a math mistake on your submittedtax return. For example, if your income is $3500, but you reported $3000 or $500 due to mathematical error, you owe the omitted tax. Consider replying and rectifying the case after receiving the simple letter from theInternal Revenue Serviceindicating the error.
- Omission of Income
Many independent contractors and investment companies fill out the 1099 and W-2 Forms for tax purposes. But mistakes are inevitable, so if you omitted income on any of these forms, you’d receive a letter from the commission.
After receiving this letter, consider owning the faults and pay the debt with incurred interest or penalties before thetax due. Or disagree with the letter and file for further examination with evidence via mail or telephone and contact atax professionalfor the best advice.
The Audit Letter
TheInternal Revenue Service‘s audit letter will demand specific documentation and evidence supporting deductions on your returns. Mosttaxpayersreceive this letter because the commission wants to see a formal acknowledgment of the charity donation and deducted amounts.
Consider mailing the commission your credit card receipt or evidence to support your claims. But if there are no proofs to support your claim, consider paying the debt and close the case. While paying is not your only option, you can argue your point through litigations or the commission channels.
IRSOfficeAudit
IRSOfficeauditsare face-to-face meetings conducted at theInternal Revenue Serviceoffice. This meeting is a severe audit form, and a swift response is essential for a quick resolution. If you have issues withitemized deductions, business revenue, or rental income and expenses, it may result in anIRSofficeaudit.
While the initial notification for this audit comes via mail,taxpayersneed to visit the Internal Revenue Office to meet agents after receiving the invitation.
The letter contains the examiner’s contact information and details of the meeting to streamline the process. Furthermore, the letter preparestaxpayersand includes the information required to present at the audit meeting. There’s no reason for panic as this audit focuses on specific areas of your return.
The IRS resolves complicatedtax issuesinvolvingsmall businessor non-business returns with these meetings. The commission usually assigns theoffice auditresponsibility to an examiner duty post close to thetaxpayer‘s residence or business location.
The meeting can be held at a designated office on a particular date for easy document access. Although anoffice auditis more elaborate than its correspondence counterpart,taxpayersoften complete the process in a single session or day.
Consider heading to this meeting with yourbank statements, retirement plan documents, businessincometaxreturns, etc. The process is straightforward, but it can take additional time if the examiner asks for supplementary documents.
Remember that the commission cares abouttaxpayers‘ convenience, and you can reschedule with the examiner’s approval. Furthermore, you can transfer the meeting to another area, even after starting the proceedings but with proper communication with the examiner.
You can facilitate the meeting at an office within another area as long as it aligns with the auditor. The location of thetaxpayer‘s documents plays a significant role in the transfer of meetings between offices. Furthermore, other determining factors are the locations wheretaxpayerscan efficiently access information to resolve the issue.
The idea is to inform theIRS managerin the Central Reconsideration Unit (CRU) of your reasons with evidence. The IRS requires anoffice auditif your submitted information has multiple deficiencies.IRS agentsexamine thetax issuesand demand proof and evidence supporting your claims.
There’ll be another evaluation round if you support your claims with new information omitted from the pre-existing submitted data. After a thorough assessment, the agent determines your documents’ accuracy and decides if it’s worth incorporating into your file.
After proper evaluation, the examiner will issue a decision based on your case type with an appeal option. If your case is eligible for audit reconsideration, you’ll get a service letter indicating it. This audit may result in zero changes in your return or even reveal that theInternal Revenue Serviceowes you atax refund.
If you fail to produce adequate records and supporting evidence, you may get the IRS disallowance letter, including fines and penalties. The examiner’s decision may include unpaid taxes and levy owed, buttaxpayerscan request an appeal for further reconsiderations. An unfavorable result is not the end of the world. You may win your appeal with an experiencedtax attorneyby heading to atax courtwithin thestatute of limitationsguideline.
IRSField Audit
TheInternal Revenue Servicefield audits, also known as field examinations, are another comprehensive process that terrifies manytaxpayers.Field auditsinvolve in-person meetings withIRS auditorsor agents at thetaxpayer‘s residence or the company’s representative office orplace of business.
Furthermore, the commission can send a letter for a meeting at thelocalIRS officeto clarifytax issues. Knowledgeable and experiencedInternal Revenue Serviceagents performfield auditsbetter than other representatives, and atax attorneymay be your best solution. Remember that these revenue agents specialize in different industries, and an experiencedtax attorneyis an ideal match.
When theInternal Revenue Serviceagent visits your home or business location, they may demand your revenue records. Furthermore, these agents can ask for other things outside your records but related to your tax case.
IRS examinersdo not limit investigations to certain areas, so prepare necessary documents before their arrival for effectiveness. Team examination and general program are the twofield auditstaxpayerswill encounter with revenue agents.
The in-person meeting that holds at an individual residence or business location is anInternal Revenue Servicegeneral program. The team examination program involves a combination of examiners and is more specific for complex and large organizations.
The IRSfield auditagent usually demandsfinancial recordsof corporations, businesses, and individuals to ensure data accuracy on theirtax returns. A typical field business audit includes reviewing finances, interviewing employees, and taking a tour of the organization’s facility.
Interviewing employees help theInternal Revenue Serviceagents understand the business structure, internal controls, and accounting procedures. Furthermore, these examiners evaluatetaxpayers‘ business records and evenmail audits.
During an individualfield audit, the agent is more interested in reviewing thetaxpayer‘sfinancial records. Meanwhile, this audit usually lasts between 2 hours to one week, depending on your account’s complexity.
If your business has an inventory, the examiner would demand the records to ensure accuracy. MostInternal Revenue Serviceagents observe and review inventory records and may penalize you for inaccuracies. Agents involved in IRSfield auditsare efficient and can effectively find a resolution to complex issues.
They provide expertise to different issues encountered in various tax-related issues. Remember thatfield auditsare more severe and intrusive than other audit types. So, if the commission decides tofield audityour finances, it’s time to hire atax attorney.
Ensure legal representation is present during yourtax preparationand meeting, as revenue agents may use your words to expand the auditing scope, which can be tiring. Talk with yourtax attorneyto advise whether yourCPAcan communicate with theInternal Revenue Serviceagent without accidentally broadening the scope of discussions to avoid unnecessary fines or penalties.
TCMP Audit
TheInternal Revenue Serviceexamination branch intermittentlyconductsTaxpayerCompliance Measurement Program or TCMP audits. The IRS performs thistax auditto ensuretaxpayerscomply withtax lawsand update the Discriminant Function System data.
While a regularInternal Revenue Serviceaudit requires a portion oftaxpayers‘ documentation, the TCMP audit requires complete documentation. The IRS requires full documentation for this audit to ensure the validity of thetaxpayer‘s income and expenses on the submitted form.
This can sometimes be expensive astaxpayersrequire atax attorney‘s service. The method may also be time-consuming iftaxpayersare not well organized or do not have necessary documents available at request.
TheTaxpayerCompliance Measurement Program can become unpleasant for manytaxpayers, especially with the quality and complexity of record-keeping. Remember that theInternal Revenue Servicechooses the TCMP subjects based on data from the Discriminant Function System (DIF) scores.
The commission develops these scores by examining and analyzing a group methodically and in detail. While the group usually involves over 50,000 random selections for intensive audit, theInternal Revenue Servicedoes it every few years.
The IRS created a statistical database that determines its enforcement focus for smooth operations. This database ensures that theInternal Revenue Serviceaudit selection remains random.
In aTaxpayerCompliance Measurement Program audit, the IRS analyzes every detail oftaxpayers‘ returns and validates the data with accurate documentation. The commission usually demandsbank statements, contract documentation, invoices, and receipts fromtaxpayersat this auditing level.
These documents would prove your claims and help your case beyond doubts if the data are accurate. TheInternal Revenue Serviceaudits everytaxpayerreturn line and requires documentation for every item and not a portion of it.
Consider heading to theIRS officewith all your records well-organized.Taxpayerswho cannot provide the necessary documentation to prove their case beyond doubts may attract fines and unnecessary penalties even if their claims are valid.
Documentation and receipts are essential to the IRS, and keeping and presenting them when necessary will help you. While the process can be rigorous for many people, it only takes a few hours for sometaxpayers.
TheTaxpayerCompliance Measurement Audit Program is a long-time secret that continues to help the commission determine who to audit. A typicaltaxpayerwith charitable deductions, stock or mutual fund investment, salary, and kids may take three to four hours to go through the audit.
Remember that your scores will determine if theInternal Revenue Serviceshould invite you for auditing. This method is a top-secret and intensive program, buttaxpayerscan streamline the process by getting necessary records ready before meeting with the revenue agents.
Whichever audit invitation you get from theInternal Revenue Service, you need good organization and a calm mind to approach things. Consider gathering your receipts, checks, and necessary information related to questionable items in sequential order for a quick resolution.
Also, we cannot overemphasize the need for atax attorneyfor professional advice before you meet withIRS agents.
CP2000 notice
CP2000 notice, also known as underreported inquiry, is a letter sent totaxpayerswhen discrepancies are in the W-2 and 1099 forms. Manytaxpayersget this notice because the payment or income details on theInternal Revenue Servicefile differ from thetax returninformation.
If yourtax returndata differs from the income information on the IRS file, the commission sends a CP2000 notice. Furthermore, the discrepancy may decrease or increase your tax or even have zero effects, but theInternal Revenue Servicemust verify all information for accuracy.
The CP2000 notice providestaxpayerswith the necessary information to determine the proposed changes on the tax form. This generated letter proposes possible penalties and taxestaxpayersowe for omitting vital details on the return.
Remember that theInternal Revenue Servicecan question credits and deductions with different information on your statement. The IRS file this statement with your social security number (SSN) and sends you a notice request for valid data.
But the notice is computer generated and is not always correct. Manytaxpayerswho receive this notice and pursue the case owe the government no money. So, there’s no need to panic when you receive this letter.
Your first task is to contact atax professionalor certified public account fortax preparationbefore replying to the commission within the required time. Ensure thetax professionalis aware of the process as you move further for a quick resolution.
Start by evaluating your position and decide on the proper response. Validate your taxes by checking the reported income figures on yourtax return. Combine the information statement on your SSN and compare thebusiness taxdetails.
Consider calculatingadditional taxesyou owe, and you’ll know if you agree with the received letter or not before responding to the IRS. If you agree with the letter details, consider replying to the IRS with a payment or demand for an installment agreement for thetax yearto avoid further sanctions.
Should you disagree with the letter details, you still need to reply but consider stating your position on the matter. State your position and attach documents supporting your claim to clarify the issue.
If the commission accepts your claim, you’ll get a notification correcting your return. If the reverse is true, you’ll get a rejection with an appeal option. After eight weeks, consider calling the commission’s local office to confirm the best way to resolve the issue.
It’s best to analyze your information statements to avoid future returns. Do not submit incorrect information on your deductions, income, and expenses to theInternal Revenue Service.
If you made an error while filing your return for thetax year, your best solution is payment when the commission sends a letter regarding the issue.
