Perhaps nothing is as anxiety producing as receiving a letter from the Internal Revenue Service. Exacerbating the situation is the language the IRS uses in its communications. Unless you have expertise and experience dealing with the IRS you will almost certainly be confused and find it difficult to know how to proceed. If you are facing an IRS civil examination, the following is a brief over view of what you can expect.
Different Forms of Examination
An examination, also referred to by many as an audit, comes in different forms. The primary determination of the type the IRS will select centers on the nature of the taxpayer and the complexity of the taxpayer’s return.
This form of examination is the least obtrusive of the methods the IRS employs, and in most cases is conducted entirely via telephonic conferences or alternatively through the mail. Typically, the IRS examiner is looking for substantiation of a particular deduction taken by the taxpayer. If you’re the subject and can sufficiently demonstrate proof, the examination concludes. If you cannot properly document the claim it will likely result in the IRS disallowing the deduction.
Area Office Examinations
These are usually face to face audits that occur in a local IRS agent office, although on some occasions they may be done via correspondence. Area office examinations are appropriate mostly for business returns but also complicated personal returns. The examiner is primarily seeking to verify the subject’s income and deductions and has little discretion but to approve or disallow. A disallowance may trigger additional examination of previous years’ returns.
Field audits are reserved for the most complex tax returns. They may be conducted in an IRS office but generally are done at the subject’s place of business. One examiner or a team of examiners may be used depending on the nature and scope of the examination. The examiners thoroughly review not only the tax return but also the financial records of the business and have wide latitude in what they choose to review. Depending on what the field examination uncovers, there is the possibility of the involvement of the IRS’ Criminal Division.
If you have been contacted by the IRS, be certain you understand what they are asking you for and how best to present your response. A consultation with a tax professional is the prudent course to ensure your rights are protected.
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