4 types of IRS Audits and how to Prepare

Let's talk about the 4 types of IRS Audits, and some things you can do to prepare for being Audited by the IRS. By Alan Orlowsky

As a Certified Public Accountant and former IRS agent, I understand getting a notice that you're being audited by the IRS can strike fear in the hearts of the bravest of taxpayers. Let's talk about educating yourself about the different types of  IRS Audits and how to follow a few simple rules that can make the process much less painful should the IRS should choose you for an audit.

There are 4 main types of Audits, and the truth is you will prepare different for each one so it is important to understand the difference.

• Corresponding Audit - This is the least severe type of audit and involves the IRS sending a letter in the mail requesting more information about part of a tax return. Typically the IRS asks for a straightforward answer on less complicated issue, such as proof of dedications, and you mail back the answer. If your tax return is legitimate and you have the data to back up any claims on your return you can normally handle the situation on your own. If you don't have the receipts or information, then you may want a professional dealing with the IRS because you could face additionally fines, penalties and interest if you end up owing money.

• Office Audits - If the IRS has additional questions regarding your return you will typically receive a letter in the mail inviting you into an IRS office for the audit. This type of Audit is often more serious, so it is important your records are in place, and all receipts are accounted for. You are allowed to have your tax prepare, accountant or tax attorney accompany you to the Office Audit. These Audits typically are resolved during this Office visit and if you are missing information you will be granted more time to provide any documentation you do not have during the meeting.

• Field Audits - This is the most serious type of audit and it involves the IRS visiting you at your home. While there are much fewer field Audits compared to the other types, these types of Audits involve the IRS looking for something and the agent will request access to other things or documents that should be commonly found in your home. I would not recommend to any of my clients to go into a Field Audit without proper representation.

• Random Audits - In this type of audit the IRS is not looking for anything in particular when they send out random tax payers to review their return, but they will review the entire return. The IRS conducts these Audits to determine what areas are most likely to produce additional taxes. In most cases you do not need legal representation, but this is the most comprehensive type of audit and again the IRS will be looking at everything on the return. 

While the seriousness of the audits varies, it is my professional recommendation that the best way to prepare is to always organize all your receipts with your accompanying tax return and store them some place secure since it is likely you won't get an audit notification until 12 to 24 months after your return has been filed.

It has become so much harder to get the documents together if a year has past. When you file your return you are better off building a file and organizing them in anticipation of an audit then reacting to an IRS Audit. 

Some commonly asked questions I have received include:

• I received a notice from the IRS, what do I do?
• I lost some of my receipts for items I claimed as deductions. Can I use a bank statements to prove I purchased the items in question?
• What information do I have to give the IRS field agent?

If you have received a notice from the IRS or have questions related to any Tax issue please contact Alan Orlowsky by calling 847-325-5559. You can also visit our website at http://www.orlowskywilson.com