IRS Tax Audit - FAQs

Does the IRS ever contact a taxpayer  individual or business the tax preparer via e-mail to initiate an audit?

The IRS will never not contact an individual or business via e-mail for an initial appointment. Contact related to being selected for an IRS tax audit will be made via telephone or mail only, due to disclosure requirements. IRS is very wary about any email correspondence and do not allow it.

Does filing an amended return affect the tax return selection process?
Filing an amended tax return does not affect the IRS selection process of the original tax return. However, amended returns also go through a screening process and the amended return may be selected for audit. IRS computer audit score is placed on all tax returns.

Why and How was my return selected for audit?
As a general rule, when tax returns are filed, they are compared against “norms” for similar returns. The “ IRS norms” are developed from audits of a statistically valid random sample of returns. These returns are selected as part of the National Research Program which the IRS conducts to update return selection information.

The return is next reviewed by an experienced tax auditor, tax examiner or Revenue Agent. At this point, the tax return may be accepted as filed or if based on the auditor’s experience questionable items are noted, the agent will identify the items noted and the return is forwarded for assignment to an examining group. Many times it is wise to place receipts for high expense items attached to the return.

Where will the IRS tax audit be held?

It depends on the type of audit being conducted.

a. Audits by Mail – Correspondence Audit.

This type of tax audits are conducted entirely by mail. If the audit is conducted by mail, you will receive a letter from the IRS asking for additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. Make sure you are timely when responding to all IRS correspondence. If you do not respond IRS will feel you agree wtih the number and move forward and asses the tax. At this point they will move forward in to full enforcement mode.

b.Office Audits In-Person Audits are audits conducted at a local IRS office. These are usually a couple hour audits on two or three items.

c. Revenue Agents will usually come to your place of business. 
These are longer more complicated tax audits. You should always be represented for these type of tax audits.

Can you request the tax audit be conducted at the IRS office instead of at your place of business?

If the audit has been scheduled to be conducted at your location, it will generally be conducted where the books and records are located. Requests to transfer the audit to another location, including an IRS office, will be considered but may not be granted. Treasury Regulation 301.7605-1(e), Time and place of audit, discusses the items considered when a request for a change in location is made. If you are represented by a tax professional the tax audit will usually take place at the office of your tax representative.

Can the audit be transferred to another IRS office?
You can request a transfer of an audit if you have moved. Several factors will be considered such as your current location, the location of the business and where the books and records are maintained.

If the audit is by correspondence, you can request a face-to-face audit because the books and records may be too voluminous to mail.

How long should the records related to a business or other long-term asset be kept?
In the case of an asset, records related to the asset should generally be kept for as long as you have the asset plus three years. If the asset was exchanged, the basis for the new asset may include the exchanged asset so the records for both assets will need to be retained until the new asset is disposed plus three years from the file date of the tax return for the year of disposition.

How long should payroll records be kept?
In general, payroll records should be kept for six years with a review of the file to see if any items relating to current employees should be retained with current records.

After an auditor completes the audit, will the case be reviewed to ensure the audit results are correct?
All cases may be reviewed by the auditor’s manager either during the audit or upon completion. If errors are noted by the manager, the auditor will contact you to advise you about the proposed correction and what impact this may have on the amount of tax due.

What happens if you are not ready?
If you do not have all the information requested, contact your auditor at the number reflected in the notification letter to discuss what information is currently available. It may be possible to begin the audit with the information available rather than postpone the appointment. The quicker the audit begins, the quicker it can be resolved. In addition, if the initial appointment is scheduled beyond 45 days from the initial action, managerial approval is required.

How far back can the IRS go to audit my return?
Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. 25% is usually considered substantial. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.

If a tax audit is for an older year, you may be requested to extend the statute of limitations for assessment of your tax return. The statute of limitations limits the time allowed to assess additional tax. The statute of limitations is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds.

If the tax audit is not resolved and the statute of limitations date is nearing, you may be asked to extend the statute of limitations date. This will allow you additional time to provide further documentation to support your position, request an appeal if you do not agree with the audit results, or to claim a tax refund or credit. It also allows the IRS time to complete the audit and provides time to process the audit results.

You do not have to agree to extend the statute of limitations date. However, if you do not agree, the examiner will be forced to make a determination based upon the information they currently have. Therefore, the examiner may not be able to consider additional adjustments, such as expenses, that could lower the amount of tax due.

Is there a statute for Tax Fraud?

There is no statute for tax fraud.

What are usual fees for Tax Audit Defense?

It all depends on the complexity of the case. Some are resolved for nominal amounts and others in the $5000 dollar range. A lot also depends on the issues and shape that the records are in.