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.
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.
