What Does It Mean to be Audited?
These days, IRS audits are rare. The average person stands less than a 1% chance of being audited.
When the IRS does conduct return audits, three out of four are mail audits. A minimally intrusive process. The audit type that likely comes to mind is the much more complicated face-to-face interview.
Let’s explore the common question: What does it mean to be audited?
The Mail Audit Process
The IRS will mail an official notice requesting specific answers and documents to support a triggering detail within your filed return. Examples include income, deductions, or a tax credit.
When your response is requested, the most important things to do are:
- Respond to the IRS with all evidence by the specified deadline.
- Remain actively involved with the process, including any filed appeals or disputes.
When exchanging documents with the IRS, be sure to include an explanation of how each item supports your filed return. When information can’t be located, providing a thorough explanation via “oral testimony” could be the next step to take.
If you disagree with the IRS decision on your return, including any proposed penalties, you may be able to file an appeal with the IRS.
What’s the Deal With Deadlines?
We cannot emphasize enough the need to respond to all requests for information from the IRS. Appeals must also be filed according to the deadline established by the IRS. If you miss these important deadlines, the IRS can charge you taxes. Or worse, you could possibly lose your right to appeal.
Filing for an extension is a great option for those who find themselves unable to provide all documentation before the IRS deadline. This option is a protective measure to offset additional taxes and penalties that you could be charged.
If you’ve already missed the deadline and you have been charged additional taxes, you can request audit reconsideration from the IRS. You may also want to find some expert help to weigh your options as this process can become complicated.
What Is the Face-to-Face Audit Process?
Audits that occur within an IRS office are called the office audit or desk audit. Office auditors, called tax examiners, focus on specific items on the questionable tax return. When the IRS conducts an audit at the taxpayer’s home or place of business, it’s called a field audit.
Revenue agents review all business types in the field including high net-worth taxpayers with complicated returns. Examples include employer returns, estates, trusts, and international filings.
Office and field audits are a mystery to many. Most taxpayers and tax preparers haven’t experienced this type of IRS enforcement action. If you are subject to a face-to-face audit, there are four basic phases to expect:
- Audit notification and preparation: The IRS notifies you (or your authorized tax pro) about the audit, almost always by mail. Usually, the audit will be for a return that you filed within the past two years. The IRS will send a request for information (Form 4564, called an information document request, or IDR). The IDR will most likely show you what the IRS is interested in auditing. But don’t let this fool you; office and field audits involve more than one year and often expand to other issues.
- Initial interview: The office audit process takes about two hours. For field audits, this process can take up to a full day, depending on the complexity of the taxpayer and the tax return. During this time, you will give the auditor the big picture of your circumstances, your business, the year under examination, and the items requested by the auditor.
- Issue development: Inevitably, the IRS will focus on a few items – and will ask a lot of questions about your return, finances, and more. There may be more IDRs and even requests for interviews. In this stage, you must advocate for yourself and provide explanations to the auditor. If the auditor proposes an adjustment to the return and/or penalties, you will need to decide to agree or start preparing your appeal.
- Finalizing the audit and appealing the decision, if necessary: If the appeals process is your next step, an impartial person in the IRS Office of Appeals will consider your petition at an appeals hearing. This hearing is held months after the audit has ended and will likely take place by phone. If you prefer, you can request a face-to-face meeting with the appeals officer. If you disagree with the decision, you could eventually take your case to the U.S. Tax Court.
What Should I Do Next?
To avoid the stress and negative possibilities of face-to-face audits, many taxpayers leave field audits, and even office audits, to experienced tax professionals who can navigate the process and deal with the IRS for them.
Make an appointment for a free consultation with a local tax professional by calling 855-536-6504.
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Related tax terms
Information Document Request (IDR)
Related IRS notices
IRS Letter 525 - The IRS is Auditing Your Form 1040 and Needs a Response From You
IRS Letter 566 - The IRS Has Selected Your Tax Return For Audit
IRS Notice CP75 - Exam Initial Contact Letter - EIC Entire Refund Frozen
IRS Letter 3572A - Your Federal Income Tax Return Has Been Selected for Examination