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Understanding the Types of IRS Audits

The first reaction by most taxpayers when they find out they are being audited by the IRS is crippling fear.  An audit occurs when the IRS has reason to believe that the tax you paid is not what should have been collected.  The IRS wants to investigate how you calculated your tax due for the year.  If you have received a letter in the mail from the IRS, take a deep breath and don’t immediately panic.  You might not even have to meet in person with the IRS, depending on the type of audit.

There are three main categories of IRS audits: a correspondence audit, a field audit, and an office audit.  A correspondence audit happens via the mail.  The field audit happens in person in your place of work or home.  An office audit happens in person at your local IRS office.  Read on to learn more about each of these three different types of audits.

What we are going to cover:

  • The three different types of IRS Audits (correspondence audit, field audit, and office audit)
  • The location, timing, and expectations for each of the three types of IRS audit
  • Best practices of being audited and reasons to see legal counsel or professional assistance

 

1.) Correspondence Audits

The most common type of IRS audit is a Correspondence Audit.  This type of audit is exactly as it sounds.  The IRS requests certain supporting documents and files through the mail from the taxpayer.  While responding to these requests might sound simple, hiring an attorney to assist with crafting the right response and ensuring the proper documents are provided is imperative.  Allowing a seasoned professional to handle the communication with the IRS should make the audit process more efficient and will cut down on the number of back and forth communications with the IRS.  The longer the audit drags out, the greater amount of interest that will be applied to proposed adjustments (if any) that arise out of the audit.

2.)  Field Audit

Another type of IRS audit is a Field Audit.  The IRS has agents assigned to certain territories, types of businesses, certain industries, or individual tax issues.  During a field audit, IRS agents will come to your company’s office or your home and look through your accounting files and documents.  This type of audit differs from a Correspondence Audit because it is done in person.  Even though field audits are sometimes faster, unfortunately your employees or coworkers might know that you are being audited because of the in-person or in-office requirement.  This can create an awkward working environment and bring into question the quality of documents prepared or maintained by accounting and finance employees.  Field audits generally only occur for businesses or individuals with larger taxable income.

3.) Office Audit

The final type of IRS audit is an Office Audit.  These audits occur in person as well.  However, the taxpayer is required to meet in the IRS office with an agent at a specific date and time.  These types of audits are generally for complex tax issues or larger tax concerns.  These audits often occur because the IRS suspects the taxpayer of big tax issues.  Oftentimes, the IRS will attempt to get the taxpayer talking about a number of issues that might open up additional tax questions.  Because these audits occur in person and inside the IRS office, taxpayers should have legal representation at these meetings.  Keeping the responses brief and allowing a third party to handle most of the communication at these meetings is a great best practice.

Taxpayers should handle an IRS audit notice with care and concern.  As mentioned, just because a taxpayer receives a notice does not mean they will have to meet in person with an IRS agent.  Understanding the different types of IRS audits is essential to crafting the correct plan of action for a taxpayer.

Contact an Attorney

If you are reading this article because you received an audit notice in the mail contact Ayar Law for free, no-obligation tax advice at 800.571.7175.

Executive Summary:

  • There are three different types of IRS Audits: a compliance audit, a field audit, and an office audit
  • A compliance audit occurs through the mailing of supporting files and responses to questions
  • A field audit occurs in-person in the taxpayer’s place of business or home
  • An office audit occurs in person on a select date and time at your closest IRS office
  • Taxpayers should have legal representation if subject to any of these three types of audits due to the complexities of an audit, delays that can occur during the process, and the challenges of handling potential in-person examinations

 

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.