The thought of an audit by the IRS is enough to make the majority of people break into hives. However, audits are not all created the same. There are actually different types of audits that range from a simple request for information to a comprehensive tax review.
The specific type of tax audit you receive makes a big difference in how you need to respond, the types of questions you will be asked or even if you need to hire an attorney. Knowing the different types of audits will help you understand exactly what you are facing if the IRS comes knocking at your door.
In a correspondence audit, the Internal Revenue Service requests that you document specific tax return items by the deadline. Normally, this is a routine test for compliance. All you have to do is search through your records, make a copy of the documentation and send it to the IRS with a copy of the IRS request.
In an office audit, the IRS will request your report to an IRS office that is nearby. You will have to document one or more line items listed on your return. You may resolve the specific issue without meeting with the IRS at their office by sending them copies of proof prior to the appointment. Generally, office audits are an easy process unless they find errors or discrepancies that prompt the Internal Revenue Service to dig into your return deeper.
The field audit is the most dreaded of all audits. You will need to provide documents for various tax return items. You will also have to meet with an IRS agent to thoroughly review your records. If you need more time to gather all of the required documents, you can request to have your audit postponed.
Regardless of how careful you prepare your tax return, you could face a Taxpayer Compliance Measurement Program Audit. These tax audits are arbitrary and are used to gather data for statistical and research purposes by Congress and IRS. You will need to prove and document every item in your tax return in this detailed and lengthy audit.
This audit is used by the IRS to determine the levels of compliance, estimate the number of tax gaps, allocate resources for audits and to help develop useful formulas to decide what tax returns need to be audited.
A criminal investigation audit is conducted if you’re suspected of tax evasion. If the Internal Revenue Service is able to prove that you purposefully have not paid taxes on your income, you will face considerable fines and possibly time in jail. If you are facing a criminal investigation tax audit, you should hire a qualified attorney.
The best advice if you get notified of an IRS audit is to just get it over with. Audits are not fun but cooperating with the IRS is the easiest way to put the whole ordeal behind you.