written by Amy Shewmaker
There are three main types of IRS audits: correspondence audits, office audits, and field audits. Correspondence audits are initiated by postal mail. Office audits require a taxpayer and/or its representative to appear in an IRS office; and a field audit involves examiners paying a visit to the taxpayer’s office.
Correspondence audits are done entirely through mail (The IRS never uses e-mail to correspond with taxpayers.). Correspondence examinations require less involvement from IRS examiners and are therefore used more frequently by the budget-strapped IRS. The IRS uses correspondence audits for issues that it considers more efficient to be handled by mail, for example questionable claims for earned income tax credits or inconsistent line items.
Generally, office audits involve small businesses or individual income tax returns that include sole proprietorships. They involve issues that are too complex to be handled through mail and telephone calls but not complex enough for a full audit examination. Common issues include the substantiation of a business purpose, travel and entertainment expenses, Schedule C items, or certain itemized deductions.
Office audits generally take place at the IRS office located nearest to a taxpayer’s residence or place of business. However, the IRS will consider written requests from taxpayers to change the location. A request by a taxpayer to transfer the examination location will generally be granted if the current residence of the taxpayer or the location of the taxpayer’s books, records, and source documents is closer to a different IRS office than the one originally designated for the examination.
The IRS initiates a field exam audit usually by sending a letter that lays out the issues to be examined and lists a specific IRS agent as the point of contact. Taxpayers must contact the agent within 10 days of receiving the letter in order to schedule an interview. Generally, an Information Document Request (IDR) also accompanies the letter and contains the IRS examiner’s description of the documents they want to review.
Conducting a field examination of a tax return requires the agent to have far greater knowledge of tax law and accounting principles than do correspondence or office auditors, and therefore, these examiners are generally much more experienced than other examiners. Field audits usually take place where the taxpayer’s books, records, and other relevant data are maintained. However, if a business is so small that a field examination would require the taxpayer to close the business or would disrupt business, the IRS examiner can conduct the field examination at the closest IRS office.
If you have any questions regarding the different types of IRS audits, please contact us at 417-881-0145.