In our last blog, we discussed some of the red flags that may trigger a tax audit. While most Americans would likely admit that they fear being audited, many aren’t familiar with the actual process.
It's important to know that not all IRS audits are alike. In general there are three types of audits and the communication methods, scope and complexity of each vary. The most basic type of audit is known as a mail audit. Much like the name suggests, individuals who are the subject of a mail audit are notified and send requested documentation via U.S. mail and will probably never even speak to an IRS agent.
Mail audits are triggered by possible errors or discrepancies related to tax deductions. If you're targeted in a mail audit, the IRS will request that you provide additional details and documentation related to specific deductions you took on your tax return. In most cases, once the requested documents have been sent to the IRS, the audit is complete.
If you learn that you are the subject of an audit and the IRS requests that you come into a field office, this type of audit is commonly referred to as an office audit. While it's normal to be concerned if you're summoned to an actual IRS building, office audits aren't necessarily any more serious than mail audits. Rather, the nature of the audit may be a bit more complex and require that you produce multiple documents or records and also an explanation related to your actions.
The most thorough of all audits is a field audit. If you are notified that you are the subject of a field audit, you should be prepared to open the doors of your home or business to an IRS auditor. In some cases, field audits are triggered when an agent needs to verify certain deductions that relate to a home office or business. In other cases, a field audit may be necessary simply due to the complex and thorough nature of an audit request.
Individuals, who are notified of an impending IRS audit, would be wise to consult with a tax attorney. Any attorney can provide advice and guidance when it comes to dealing with the IRS and represent one's best interests throughout the audit process.
Source: The Motley Fool, "Your Tax Audit Playbook: What to Expect If It Happens To You," Matthew Frankel, Feb. 7, 2016