Some audits are fairly routine, and some result in only minor changes for the taxpayer. Some audits do result in additional taxes, penalties, or interest that the taxpayers must pay, but some audits do result in refunds. These results come from any of three basic types of audits:.
- The mail audit: In these cases, the IRS will send a letter requesting an explanation or additional information. Note that an “Automatic Adjustment Notice,” simply states that a taxpayer owes a certain amount of additional tax. These are usually the result of a calculating error.
- The interview audit: Here, a taxpayer appears at an IRS office with all receipts and crucial documents ready for the audit.
- The field audit: The IRS schedules field audits at the taxpayer’s home or business. This is the usual form of audit for small businesses and for businesses operated from the home.
In some audit situations, a taxpayer may not need to actually meet in person with an IRS agent. These kinds of audits are conducted entirely by mail (sometimes known as “correspondence audits”). In an audit by mail, a taxpayer is commonly requested to justify or explain some part of a tax return by providing additional information through the mail.
If taxpayers are asked to provide documents to the IRS through the mail, they must send copies, as the IRS may misplace the originals. It is also a good idea to use certified mail, return receipt requested, to mail documents to the IRS. This method will provide proof that the response was mailed by the deadline the IRS gave the taxpayer. While phone calls can be more expeditious in some cases, that is not usually the case with the IRS. However, if taxpayers find it necessary to call the IRS about their audit, they should be sure to keep a detailed log of the call. They should record the date and time of the call, the name and title of any IRS employee with whom they speak, the general content of their discussion, and any advice or directions that they receive.
When taxpayers first hear from the IRS about an audit, they will receive a copy of the IRS publication, “Your Rights as a Taxpayer.” This pamphlet contains an explanation of the Taxpayers’ Bill of Rights, which has been enacted by Congress. It will also describes how the IRS conducts audits and collects unpaid taxes.
It is a very bad idea to ignore correspondence from the IRS about taxes. Doing so may expose taxpayers to negligence penalties; it may also lead to a full-blown audit that might otherwise have been unnecessary.
If the IRS determines that an audit should be conducted in person, it will either take place in an IRS office or in the taxpayer’s home or business. The IRS conducts most field audits in offices, which are preferable often preferable to taxpayers. Even if the IRS asks to conduct the audit in the taxpayer’s home or business, the taxpayer can keep the auditor away by providing all of the financial records to the tax adviser and asking that the audit be conducted at the tax advisor’s place of business. If the IRS seems insistent that the audit takes place at the taxpayer’s home or office, individuals need to keep in mind that they cannot be compelled to admit them to their home or place of business. In cases where this is an issue, taxpayers may need to show that an audit would be disruptive to their home or business to keep the auditor away from these places.
The IRS will allow taxpayers several weeks to prepare for an audit. Individuals need to use this time to gather the documents they will need to support the entries on their return. If taxpayers need extra time to prepare or to retrieve documents, they may request a change from the original appointment time set by the IRS. If their request is reasonable, the IRS is likely to grant it.