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The Types of IRS Audits and What You Need to Know

Posted by Juda Gabaie | Oct 07, 2021 | 0 Comments

If you're facing an IRS audit, it's important not to panic. Not all IRS audits are the same, and you and your tax attorney can handle many audits quickly and efficiently by mail.

Correspondence Audits

For all IRS audits, the IRS will initially contact you by mail. Correspondence audits are the most common type of audit conducted by the IRS. You will typically receive a 566 letter or a CP2000 notice requesting more information about a part of your tax return or notifying you of an underpayment or overpayment of your taxes. You respond with the requested information or documentation showing why you haven't underpaid your taxes. You must respond within 30 days, but in many cases, it's a good idea to consult with your tax attorney to ensure that you're providing the correct documentation.

Office Audits

The IRS conducts an office audit at an IRS office. These audits are typically too complex for a correspondence audit but not large enough to justify an audit in the field. Common office audits involve Schedule A itemized deductions, Schedule C business profits or losses, or Schedule E rental income. The IRS examiner will often ask questions about the specific audit issue and finances, income, or lifestyle. If the examiner believes there are additional issues with your return, such as underreported or unreported income, they may expand the audit.

Field Audits

The IRS reserves field audits for the most complex of tax investigations. IRS revenue agents will perform the audit in the taxpayer's home, company, accountant's office, or attorney's office. Revenue agents are typically more knowledgeable than other IRS representatives and often specialize in a particular industry. When examining records, they won't limit themselves to the specific audit issue. For business audits, the IRS will review business financial records, interview employees, and even tour business facilities. For individual audits, the IRS will interview the taxpayer and review financial records.

Field audits can last anywhere from a day to a week but usually involve complex issues. If you're facing a field audit, you should hire an experienced tax attorney to assist you.

Taxpayer Compliance Measurement Program Audit

The IRS uses Taxpayer Compliance Measurement Program (TCMP) audits to update their Discriminant Function System (DIF) scores. The DIF score is a computer-generated score that rates the potential for change based on the IRS's experience with similar returns in the past. The IRS uses DIF scores to select tax returns for audits and further examination.

The IRS randomly selects 50,000 tax returns for an intensive TCMP audit to develop and refine the DIF scores and computer audit selection process. Then the IRS examines all aspects of these tax returns and ensures the taxpayers have documentation substantiating every part of the returns.

Guidance from an Experienced Tax Attorney

If you're facing an IRS audit, it's time to bring in the professionals. The experienced tax attorneys at Gabaie & Associates, LLC have years of experience helping clients through complicated tax problems, including audits and IRS investigations. Contact Gabaie & Associates, LLC online or give them a call at 410-358-1500 for a free consultation.

About the Author

Juda Gabaie

Juda Gabaie Esq. has dedicated his career in defending clients nationwide to resolve tax disputes before the Internal Revenue Service and the state taxing agencies. Juda has represented clients before the US Tax Court, Maryland Tax Court, and Comptroller of MD hearing compliance. As an adjunct prof...


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