To follow up on my previous post about the common types of IRS letters, I am going to write today about the different types of audits.
I want to preface this post with a word of warning. If you ignore an examinations (audit) letter, the IRS will assess taxes, interest, and penalties based on the return without those credits or deductions related to the examination. For example, if the letter relates to your schedule C, the IRS will base the taxable income on the gross income without any expenses. Another example, if the audit relates to your dependent deductions, the IRS will remove the dependents, possibly the head of household exemption, and any credit related to the dependent/s. The IRS will then determine the taxes without those deductions and credits--Significantly increasing your tax liability.
There are three types or IRS audits: a correspondence audit, an office audit, and a field audit. The correspondence audit is the least serious and the field audit is the most serious.
The correspondence audit is similar to receiving a matching letter. Correspondence audits occur when the IRS receives documents that do not match what you have reported on your tax return. When these occur you will get a letter from the IRS requesting more information or that a proposed additional amount of tax has been added to your return. These audits are usually resolved by returning the information request.
The office audit is the second level of audit. The IRS will send a letter requesting you bring certain information to the local office for review.
The field audit is the more serious type of audit. The IRS will come to you home or place of business and will then request to see receipts and documentation related to your return. Field audits usually result in the assessment of additional taxes. However, this does not mean the additional assessment of taxes is correct and you can fight the determination.
As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web. Please do not rely on this article without consulting your tax professional.
If you have received an examinations (audit) letter from the IRS or have questions about an audit, contact a tax professional.