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Different Types of Audits

Despite what you may hear, audits happen all the time. There are simple letter audits such as CP2000 letters. In such letters, the IRS disagrees with something for some reason. Sometimes it is quite innocent such as the electronic reporting doesn’t match. For such issues, a letter or a phone call may suffice. 

Other times it is more significant and more research is required. The IRS or other state tax authority may doubt or, in reality, want proof of something.  Such letters are more difficult to answer but not impossible. A carefully and concisely written letter may be all that it takes to resolve the situation.

There is also the office audit which is what most people think of as an IRS audit.  In this audit, the IRS tells you what their issue is as they will send you a long document with details.  Or in reality, what they don’t believe about your return.  You or your designated agent goes to the audit to explain/defend your return.  For good practice, unless the return is extremely complicated where there is no way that your representative will know all the details, it is always better to send a surrogate than go yourself.  The IRS will try to imitate you and you may get flustered.  Your agent, who must be an enrolled professional, shouldn’t take it personally and should be able to answer the examiners question.  Furthermore, if you aren’t present, the exam can’t digress too much because your agent can simply say I do not know the answer as I wasn’t prepared for this line of questioning, if the exam veers off topic. 

The worse type of audit is the field audit.  To be honest, I have not been part of these but can imagine that they are not nice.  In these audits, the IRS comes to your premises and wants to see all your records.  There is no hiding.  These type of audits are rare though and are only for extreme cases.

Regardless of the type, there is no immediate resolution it may take several months. For letter audits, you will receive a letter with their finding or with your refund.  For field and office audits, the examiner will, basically, issue a report.

Hopefully the audit goes your way, if it doesn’t, there are various ways to appeal it. However, you have to weigh the potential benefits against the cost.  If you owe the IRS an additional $1,000, it is probably better to accept their findings, pay and move on.  But if it is $100,000 you may want to decide if it is worth going, for example, to tax court.    

Brian Lang is enrolled to represent clients before the IRS and thus can help you with any of your tax needs, you can email him at tax@brianlang.me if you have any further questions.

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