The IRS does different types of audits. The three types of audits are the mail audit, the office audit, and the field audit. In other words, correspondence through letter form, a visit to the IRS office and an IRS agent visit to the company office. (Law, 2023) Each audit type gets more intrusive and more personal and objective in detail. Each one would require more in-depth investigation and time to respond and takes up more office time. The best would be to answer at your leisure in a timely fashion first.
Audits by mail are sent by the IRS for additional review to ascertain if the tax filing reported the income, expenses, and credits accurately. (Taxpayer Service, 2023) This is the easiest and simplest type of audit and does not require a visit with an auditor. Rather, the IRS will send a letter specifying their request to complete their audit, they will include where to send the requested documents to, and who to contact if there are any questions. The IRS will ask for additional documents explaining the items in your filings. This could be something along the lines of having the taxpayer show proof of a donation to a charitable organization. In response, the taxpayer will send a copy of the payment if they have it, and/or a copy of the receipt they should have received from the charitable organization.
Office audit is a request by the IRS to meet in person so that the audit can be done at a local IRS office. This type of audit goes deeper than the mail audit. This will include the audit officer asking questions about the reporting of the tax filing. (Weltman, 2022) The auditor will have the taxpayer bring in their all their bookkeeping, receipts, records for their business or personal bank statements. The in-office audit is considered full, comprehensive, and more serious than the mail audit. The finality of the audit will depend on their findings. They may determine that the taxpayer is due back a refund, or that all is well, or that the taxpayer owes more in taxes. The determination is not really final, because the taxpayer does have the right to an appeal if they do not agree with the results of the audit. Additionally, the taxpayer can take the matter to court.
The field audit is the most exhaustive type of audit that the IRS does. Typically, the IRS will send an agent to the taxpayer’s home of place of business. This type of audit is usually done when there are multiple deductions in question. (Weltman, 2022) And the field audit will cover most, if not all, the items reported on the tax filing. According to IRSsolution.com, the IRS agent may want to review all financial records, interview employees, and take a look around the business. (RJS Law Firm, 2022) This will be mainly to understand the business structure, accounting procedures, and internal controls. If the taxpayer does agree with the findings, they will sign the examination report and come up with a payment arrangement.
References
Law, B. (2023). Types of tax audit: 4 different types of IRS audits & purposes. San Diego Tax Attorney. https://www.sambrotman.com/irs-tax-audit/types-severity
RJS Law Firm, A. (2022, March 30). Four types of tax audits: Tax compliance audit: Tax audit: RJS law. RJS LAW – Tax and Estate Planning. https://irssolution.com/blog/four-types-of-tax-audits/
Taxpayer Service. (2023, October 24). Audits by mail. Taxpayer Advocate Service. https://www.taxpayeradvocate.irs.gov/get-help/interacting-with-the-irs/audits-by-mail/
Weltman, B. (2022, April 22). How do irs audits work?. Investopedia. https://www.investopedia.com/articles/personal-finance/032415/how-do-irs-audits-work.asp
Hello,
What happens on the field audit when the taxpayer does not agree with audit? Does the taxpayer have options, like going to court, as in the office audit?
Thank you.
Hello JR,
That’s a great question, thank you for asking! Yes, the taxpayer can appeal the audit findings, but the taxpayer can’t disagree with having the audit done. Although, the taxpayer might be able to postpone it long enough to get a tax attorney to be present.