What Are the Three Types of IRS Audits?

If you have been notified by the IRS that your return was chosen for a tax audit, the audit letter should specify the type of examination and include details for requested documentation, examiner contact information, and response deadlines. The experienced tax attorneys at Wiggam Law can explain the intricacies of your audit type, help ensure that you respond correctly, and represent you throughout the examination process.

When you receive an audit letter from the IRS, it’s important to note the type of examination for which your return was chosen. While most taxpayers fear long hours at an IRS office answering probing questions from an examiner, in reality the most common type of audit is conducted through the mail.

What Causes You to Get Audited by the IRS?

Each year, the IRS chooses hundreds of thousands of tax returns for audit. While that might seem like a lot, it’s less than 1% of all individual tax returns in any given year. The IRS uses two procedures to choose the returns:

  • Random – through its National Research Program or taxpayer compliance measurement program, the IRS randomly chooses tax returns for audit in an effort to measure taxpayer compliance.
  • Computerized screening techniques – more commonly known as “red flags,” this method compares your return to norms established by the agency.

Common red flags for an IRS tax audit include:

  • reporting high income,
  • underreporting income,
  • failing to report foreign income,
  • taking the home-office deduction,
  • claiming business use of an automobile,
  • filing Schedule C for sole proprietors,
  • acquiring cryptocurrency,
  • reporting business losses,
  • deducting a large amount of business expenses,
  • operating a business with a lot of cash transactions.

What Are the Three Types of Audits?

The IRS conducts three types of audits. These are:

  • Correspondence audit – this audit is conducted by mail and is often seeking verification of a particular aspect of your return. The audit letter will specify the area under examination and include a request for additional information. Your response should be by mail, and in turn the IRS will notify you of the results of its examination by mail. You can request to meet with an IRS agent in person, but most taxpayers prefer to stick with the US post.
  • Office audit – for this audit, the IRS requests you meet with an examiner at a local IRS office. The initial notification for this type of audit is still by letter through the mail. The letter will identify your examiner and include their contact information, as well as note the day and time you are to report to the IRS office. This type of audit also usually only looks at certain aspects of your return. The audit letter will include a list of requested documentation for you to bring with you to the audit meeting.
  • Field audit – this is the most comprehensive, but also least common, type of IRS tax audit. For this audit, the IRS examiner visits your home or place of business. The IRS agent is likely to look at all aspects of your return and the examination could take several days or a week.

Each audit should be taken seriously, and you should consider obtaining the advice of an experienced tax attorney before responding to or meeting with the IRS. It is particularly important to seek an attorney’s advice if your return has been selected for a field audit and to have representation with you during this examination.

What Is the Most Common Type of IRS Audit?

The correspondence audit is the most common type of audit and the least serious. In 2020, the IRS performed almost three times as many correspondence audits compared to field audits.

The IRS generally has three years from the date you filed your return to audit it. If, however, the agency suspects a substantial error, particularly a large amount of underreported income, it can go back six years.

After the IRS has completed its examination, it will mail you a report with its findings and any additional tax due. You have 30 days in which to respond. If you agree with the findings, you’ll be asked to sign the report and instructed on how to pay any additional assessment. If you disagree, you can request a meeting with an IRS manager, look into mediation, or file an appeal.

If you have received an IRS audit letter, it’s best to act quickly and hire an experienced tax attorney. Wiggam Law’s team of experienced tax lawyers can help you evaluate your options and represent you. Give us a call at (404) 233-9800 to get started today.