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The IRS, tax audits, and how to avoid trouble

On Behalf of | Feb 28, 2022 | Internal Revenue Service


The vast majority of tax troubles start with errors. If the Internal Revenue Service uncovers information that doesn’t validate claimed credits or deductions, taxpayers can find themselves in a bit of trouble. However, these errors don’t necessarily lead to tax evasion or tax fraud charges. Some 2,000 people or entities get hit with evasion, and only the most egregious tax evaders end up before a federal judge. 

Understanding how the IRS approaches auditing is helpful information for anyone who finds themselves in this situation. 

Types of audits

The IRS has two forms of audit: correspondence and face-to-face. 

Correspondence audits are the most common investigation. These audits are usually prompted by things like questionable business expenses, child tax credits, and medical expenses. When requested, the recipient of this inquiry will be asked to mail relevant documents to the IRS.

In-person audits can start with an interview. The IRS typically investigates serious concerns about business deductions, royalties, pensions, annuities, and other similar matters. An agent can also conduct a review of your books.

Another difference between the two investigations is that accountants do not conduct correspondent audits. The IRS assigns examiners trained to investigate tax matters, but this team of experts may not necessarily have experience or education in accounting.

Addressing an IRS audit

The hint of a federal government audit can set the most hardened consumer to trembling, but it shouldn’t. Here’s what to do instead.

Know the audit’s scope

Mail audits are typically limited to a few items. Field visits require extensive documentation and in-depth interviews.

Prepare for questions

Here are a few tips to keep in mind when an audit is on the horizon:

  • When writing to the IRS, stay on point and supply complete responses regarding requested items.
  • For in-person meetings, prepare as much as possible for questions based on what the agency asked about in previous contacts. Whoever’s responsible for your books will be invaluable here.
  • If you don’t have the documents requested, reconstruct them using other parties and records. Get affidavits from those willing to attest to your documents.

Stay on schedule and don’t miss due dates 

Send documents and letters as instructed. Be on time and prepared. The last thing you want is to give the most powerful agency in the country a reason to focus on you further.

Wait for the decision

When the audit closes, there are two results: no proposed adjustments or proposed adjustments to your return.

Appealing the decision

Upon hearing the verdict, you have 30 days to appeal. After 30 days, the IRS sends a letter closing the matter and outlining what’s expected of you. After that, you can only appeal to the U.S. Tax Court. 



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