What You Should Know About IRS Audits
Although the IRS enforces the federal tax code in a variety of ways, its primary method of doing so involves examining the returns of taxpayers who are identified as being the most at risk of noncompliance. Being audited by the IRS can be time consuming and stressful and could result in unexpected penalties, so if you were recently notified that you are being audited and want to ensure that you are adequately represented, please contact experienced Florida tax & IRS law attorney Ronald Cutler who can advise you about your legal rights and obligations.
Determining Which Taxpayers Will be Audited?
The IRS uses a number of tools to identify taxpayers that it believes may not be in compliance with federal tax law, including:
- Risk-based scoring mechanisms;
- Data driven algorithms;
- Third party information from whistleblowers; and
- Information provided by taxpayers themselves.
Once a taxpayer has been chosen for an audit, the IRS examines that individual’s income, expenses, and credits to ensure that they are being reported correctly.
Types of Audits
The IRS conducts audits in one of the two following ways:
- Correspondence examinations, which take place by mail; and
- Face-to-face examinations, which take place in person, either at an IRS office or at a taxpayer’s place of business.
Which type of audit is conducted in a particular case depends on a number of factors, including the complexity of the return in question. For instance, certain individual tax returns with low or medium adjusted gross incomes can usually be handled through a correspondence audit, while most business tax returns are handled in person.
Most correspondence tax audits involve questions about certain types of credits and deductions, including:
- The Earned Income Tax Credit (EITC);
- The Additional Child Tax Credit; and
- The American Opportunity Tax Credit.
It is also not uncommon for these types of audits to require the resolution of issues related to medical expenses, contributions, and employee business expenses. Correspondence audits tend to be less burdensome for taxpayers, as they usually don’t require any visits to an IRS office, but can be resolved by simply mailing in documentation. Correspondence audits are also the most common type of examination, with nearly 75 percent of all audits taking place via correspondence in fiscal year 2018.
Face-to-face audits, as their name suggests, are conducted in-person in IRS offices. In most cases, these examinations only require an in-office interview, but no on-site inspection of a taxpayer’s records, assets, and books. Typically, the issues selected for office audits involve questions about:
- Income from pensions, tips, rents, annuities, scholarships, royalties, fellowships, as well as income that isn’t subject to withholding; and
- Deductions for debts, business-related expenses, and complex itemized deductions, such as theft and casualty losses.
It’s important to note, however, that the most complex tax returns, whether for individuals, corporations, or partnerships may need to take place at the taxpayer’s place of business, as the auditor will require access to extensive records.
Get Legal Help Today
If you recently received notice of a federal tax audit, please call 386-490-9949 to set up a one-on-one meeting with dedicated tax and IRS law attorney Ronald Cutler, P.A. today.