What To Expect From a IRS Office Audit, a Former IRS Agent Explains
IRS has many different types of of audits and one of the most common is the office audit which is usually located somewhere near your house or in your community at the local IRS office.
While there are different types of IRS tax audits such as the mail correspondence audits and the underreported income audits, the office audit is a small business or individual type of audit.
Usually this audit has kicked out because of your DIF score. The DIF score is a discriminatory index function score that has determined that your tax return falls out of the IRS normal ranges and averages and as a result the case gets sent out to the local IRS office for tax audit review.
BEWARE: The auditor can expand the audit to go back or forward so you must be careful. If you have doubts about your tax return seek a good tax professional
Office audits typically surround matters pertaining to:
1. Itemized deductions (Schedule A),
2.business profits/losses (Schedule C),
3.Rental income/expenses (Schedule E).
Often one issue with a schedule can trigger an audit, but audits can quickly expand if the auditor suspects there may be problems in other areas of the return.
The office interview will consist of questions related to the issue under examination.
There may also be more generalized questions about employment, financial position, and lifestyle in an attempt to find other causes for concern.
An individual should give careful consideration to the answers and documentation provided to the IRS.
It’s very easy for a taxpayer to unintentionally give the auditor a reason to expand the scope of the audit.
An office audit with the IRS will typically conclude after just one day.
If the Agent wants additional information, they will give you time to supply the necessary information.
The rule of thumb whether to hire a tax professional.
If your tax return is squeaky clean do-it-yourself, but if you feel you have skeletons in your closet and many items were fudged and put together and you feel there could be issues looming, never going by yourself, it’s well worth the money to hire a tax professional is at the end of the day you’re going to save more money.
You Can Fight The IRS Tax Audit Notice CP 2000 for Underreported income.
When a tax return’s information doesn’t match data reported to the Internal Revenue Service by employers, banks and other third parties, the IRS will send a letter to the taxpayer.
The letter is called an IRS Notice CP 2000, and it gives detailed information about issues the IRS identified and provides steps taxpayers should take to resolve those issues and this is called the Underreported Tax Audit Notice.
CP2000 notices and what you need to know:
a.The IRS is found that third-party documents that they have received on behalf of your Social Security number do not match up to your tax return,
b.This is not a tax audit but in matching income audit. IRS is not auditing your tax return just the income that you say you have reported.
c. You as a taxpayer always have the right have the right to contest penalties and appeal a CP2000 determination.
What You Need To Do To Avoid Paying the Tax
1. The first thing you do is to analyze what the Internal Revenue Service is sending you and make sure whether the information you have received by their correspondence is correct.
2.If it is not correct you need to send timely certified mail back to the IRS telling them this the information is in error,
3.I suggest you call the entity that sent the information to IRS to correct the information with the IRS SAP,
4. If the IRS is correct you are going to the tax balance IRS is proposing and you can pay it in full or you can make a payment agreement with the Internal Revenue Service.
5. Sometimes the document is partial correct
The IRS reminds taxpayers this letter isn’t a formal audit notification but a letter to see if the taxpayer agrees or disagrees with the proposed tax changes.
Taxpayers should respond to the CP2000 letter, usually within 30 days from the date printed on the letter, if not the assessment stands.
The IRS provides a phone number on each letter.
IRS telephone agents can explain the letter and what taxpayers need to do to resolve any discrepancies. Keep documented records with ID numbers if IRS employees.
The IRS will send another letter to the taxpayer if the taxpayer doesn’t respond to the initial notice or if the IRS can’t accept the additional information provided.
IRS will follow-up letter is called an IRS Notice CP3219A, Statutory Notice of Deficiency.
This letter gives detailed information about why the IRS proposes a tax change and how the agency determined the change.
You have the option of going to appeals and or tax court.
Remember, follow up timely and with certified mail.
The Internal Revenue Service has four basic tax audits that they collect revenue from.
The IRS Correspondence audits are the simplest type of audit and involve the IRS sending a letter in the mail (typically a 566 letter) requesting more information about particular part of a tax return. For example, the IRS may have questions regarding auto expense and request you send in receipts to substantiate your deduction.
Believe it or not, the correspondence tax audit accounts for 75% of the total audits because it’s easy, it’s cheap, it’s a computer-generated notice and they take little time for the agent to process.
Why did you get this notice from the IRS and why have you been audited
The IRS has national averages that tax return items should fall between.
If your tax return falls out of the DIF score or the national average you will probably receive an IRS notice 566 with a checkmark or a punch list of things that they want you to return to them and show proof of the deduction, these are simple and do not be scared.
What you Need To Do, time sensitive.
It is very important you respond to them timely and have all the information sent to them. If you do not send back the information they want by the day they want it, the IRS will set this deficiency up against you & in a matter or course of time they will begin collection on the new assessed tax debt.
Do not send original documents but keep the originals for yourself and make sure they go out certified.
Do not assume the Internal Revenue Service is correct.
Check with your tax professional. If you are not sure what to do you can contact us for free initial tax consultation.
I would think the average taxpayer will receive one of these in the course of their lifetime. Need help just hit up former IRS agents who know the system can help lower your tax bills any day.
Most taxpayers not are aware there are different type of tax audits.
Below you will find the major grouping of audits but in fact there are more such as special projects, research projects and other audits management puts together.
You will find it surprising that the IRS correspondence audits account for 75% of total tax dollars for IRS audits.
The Correspondence Audit
The first of the four types of tax audits are correspondence audits are the most common type of IRS audits by far.
IRS collects billions of dollars by these correspondence audits.
In fact, they comprise roughly 75% of all IRS audits.
Correspondence audits are the simplest type of audit and involve the IRS sending a letter in the mail (typically a 566 letter) requesting more information about particular part of a tax return. For example, the IRS may have questions regarding auto expense and request you send in receipts to substantiate your deduction.
Another correspondence you may receive instead of a 566 letter would be notice CP2000.
If the information you provided in your tax returns doesn’t match what the IRS has on record for your account, a CP2000 notice will be sent notifying you that the IRS is proposing an adjustment for under or over payment of tax obligations.
You will need to respond with whether or not you agree or disagree with the notice. If you disagree, you will need to provide supporting documentation and return the form within 30 days from the date of receipt.
If you agree and owe money, you will need to submit payment to the IRS immediately or request a payment plan.
You should never ignore a letter requesting information if you receive one, as doing so will only aggravate what should otherwise be a simple correspondence.
If you prepared your tax return correctly and you have the source documentation (receipts, invoices, payments, etc.) to back up the items on your return, a taxpayer can generally handle correspondence audits on their own and likely won’t have to meet with an IRS agent in person. Simply providing the requested documentation should put the matter to rest.
If a you are missing receipts or documentation, then you may want a professional dealing with the IRS to assist you in resolving the matter.
The Office Audit
The second type of audit is an Office Audit. If the IRS has questions about your return that are too complex or large for a correspondence audit, but too small for a field audit, you will get a letter in the mail requesting that you come into an IRS office for the audit. Generally speaking, an office audit is more detailed and may have more issues.
Office audits typically surround issues pertaining to itemized deductions (Schedule A), business profits/losses (Schedule C), or rental income/expenses (Schedule E). Often one issue with a schedule can trigger an audit, but audits can quickly expand if the auditor suspects there may be problems in other areas of the return.
The office interview will consist of questions related to the issue under examination.
There may also be more generalized questions about employment, financial position, and lifestyle in an attempt to find other causes for concern (like the possibility of underreported income).
An individual should give careful consideration to the answers and documentation provided to the IRS. It’s very easy for a taxpayer to unintentionally give the auditor a reason to expand the scope of the audit.
An office audit with the IRS will typically conclude after just one day. If the Agent wants additional information, they will give you time to supply the necessary information.
The IRS Field Audit
A field audit is the most comprehensive of the four types of tax audits and detailed IRS audit. It involves the IRS visiting the taxpayer at their home or place of business to examine records.
Field audits are performed by IRS revenue agents, who are generally more skilled and knowledgeable than most other IRS representatives. IRS revenue agents will also often specialize in a certain industry.
When the IRS visits a home or place a business, they may ask to see things outside of certain records. They do not want to limit themselves to a particular item. A typical audit for a business includes a review of financial records, interviews with employees, and a tour of the business facility.
Interviews will be used to ascertain an overview of management structure, accounting procedures, and internal controls.
For an individual, the audit will just consist of a review of financial records and an interview with the taxpayer.
The audit could last anywhere from one day to a week, depending on the complexity of the account.
If you’ve been selected for a field audit, you should retain the services of a tax attorney who can be present at the time of the audit. Revenue agents many of them are CPAs conduct really in-depth audits. We have had some here in our office for over a month. Don’t be surprised if they definitively expand the audit to include other tax periods.
Anything you say can be used against you to expand the scope of an audit. A tax attorney can communicate with the auditor on your behalf to ensure the scope is not accidentally expanded.
Taxpayer Compliance Measurement Program (TCMP) Audit
this audit is a nightmare.
The fourth type of audit is a Taxpayer Compliance Measurement Program (TCMP) Audit.
The primary purpose of this type audit is to update the data for the IRS’ DIF scores. DIF scores are developed from analyzing a large group (involving up to 50,000 randomly selected returns) of intensive audits, conducted every few years.
In a TCMP audit, the IRS will analyze every item on the tax return and every part of the return must be substantiated by documentation. A standard audit is time consuming in that a taxpayer must find checks, invoices, contracts, bank statements, etc. for the items selected for audit.
In a TCMP audit, every line of the tax return is audited therefore you have to provide documentation for all deductions not a selected few items.
Whichever audit you may be confronted with, it is always best to get organized and stay calm.
For instance, pull all your canceled checks, receipts, and other information related to the items to be audited and get that information in sequential order.
What if I Get a Levy/Garnishment Against One of My Employees, Vendors, Customers, or Other Third Parties?
If you get a levy against one of your employees, vendors, customers, or other third party, you must turn over to the IRS any property you have that belongs to the person levied against. The IRS uses the levy forms described below.
Regardless of the IRS form used, a levy attaches to property or rights to property you hold that belongs to the person levied against. In general, the IRS uses the levy form that contains the most appropriate instructions about how to comply with the levy.
Please read the instructions on the levy carefully.
• The IRS generally uses Form 668–W(ICS) or 668-W(C)DO to levy an individual’s wages, salary (including fees, bonuses, commissions, and similar items) or other income. Form 668-W(ICS) and/or 668-W(C)(DO) also provides notice of levy on a taxpayer’s benefit or retirement income.
• The IRS generally uses Form 668–A(C)DO to levy other property that a third party is holding. For example, this form is used to levy bank accounts and business receivables.
Employers generally have at least one full pay period after receiving a Form 668-W(ICS) or 668-W(C)DO, Notice of Levy on Wages, Salary and Other Income (or other levy form) before they are required to send any funds from their employee’s wages to the IRS.
Encourage your employees that have a levy placed on their wages to contact the IRS as soon as possible to discuss a release of levy and resolution of their tax liability.
This is the IRS link to the above site. https://www.irs.gov/businesses/small-businesses-self-employed/what-if-i-get-a-levy-against-one-of-my-employees-vendors-customers-or-other-third-parties
