IRS Income Tax Audits

The IRS selects returns for audits based on various factors, including random selection using statistical formulas, comparisons with “norms” for similar returns, or involvement in transactions with other taxpayers under examination. Audits are initiated through mailed notices.

Types of Income Tax Audits

IRS audits are conducted either by correspondence (mail) or in person. The complexity and depth of the matters involved determine whether an audit is conducted at an IRS office (office audit), place of business, or accountant’s office (field audit).

Correspondence Audits

Correspondence audits are typically initiated by computer-generated letters. The IRS will specify the required documentation, submission details, and contact information for questions. After submitting the documentation, the IRS will either accept your return without changes or propose an adjustment. Generally, a taxpayer can request a one-time automatic 30-day extension for mail audits.

Field Audits

For in-person audits, the IRS sends a letter outlining the examined part of your return, required information, examiner’s contact details, and appointment information. Field audits involve an initial interview covering financial history, business operations, and records not available from other sources. These audits generally last a few hours and may conclude with a request for additional information or a completed report.

The IRS has largely ended unannounced taxpayer visits, except in extremely limited situations involving sensitive enforcement activities.

Documentation Requirements

During audits, taxpayers usually receive an Information Document Request (Form 4564). This form outlines the requested documents, due dates, IRS representative contact information, and preferred submission methods.

The IRS may request specific documents including, but not limited to, receipts, bills, canceled checks, legal documents, loan agreements, and business logs. Retaining all documents used to prepare your tax return for at least six years from the filing date is crucial.

Preparing for an Audit

Preparation is not just important, it’s vital to successfully navigating an IRS audit. Start by gathering all relevant documents for the tax year under review, including income statements, receipts, bank statements, and any documentation supporting deductions or credits claimed. Organize these documents chronologically and by category. Create a system to track correspondence with the IRS, including dates of letters received and responses sent. Contact the relevant institutions to obtain copies if you’re missing any documents. This level of preparation will empower you and put you in greater control of the audit process.

Reviewing your tax return thoroughly is helpful, refreshing your memory on the reasons behind each entry. Consider creating a written explanation for any complex or unusual items on your return. If you used a tax preparer, consult with them to understand their rationale for certain positions taken on your return. Remember, being well-prepared helps the audit process run more smoothly and demonstrates your commitment to compliance, which can positively influence the auditor’s perception.

Disagreeing with Proposed Adjustments

If you disagree with the proposed adjustment(s), you have several options:

Request a conference with an examiner or manager

Send your case to appeals

Wait for a Statutory Notice of Deficiency to petition the US Tax Court

Pay the tax and file a claim for refund

The Role of Tax Attorneys in the Audit Process

Tax attorneys play a crucial role in guiding taxpayers through the audit process. They can help interpret the audit notice, determine the scope of the audit, and develop a strategy for responding. Tax attorneys can communicate directly with the IRS on your behalf, relieving you of the stress of dealing with auditors and ensuring your rights are protected.

These professionals are skilled in presenting your case in the most favorable light, explaining complex transactions, and providing legal justification for positions taken on your return. If disagreements arise, they can negotiate with the IRS and, if necessary, represent you in appeals or Tax Court. Moreover, tax attorneys can identify potential issues that may arise during the audit and proactively address them.

Their knowledge of tax law and IRS procedures often leads to more favorable outcomes, potentially reducing or eliminating proposed adjustments. By engaging a tax attorney, you’re not just hiring a representative; you’re gaining an advocate who can navigate the complexities of tax law and IRS procedures to protect your interests.

Partnering with Azarvand Tax Law

Navigating an IRS income tax audit requires attention to detail, adherence to deadlines, and understanding the relevant tax laws and audit processes. Our attorneys at Azarvand Tax Law are dedicated to advocating for your rights and ensuring a fair and equitable audit process. We provide personalized assistance for peace of mind during your IRS income tax audit journey.

Visit us online to schedule a free 30-minute consultation and take the first step towards resolving your tax audit concerns.