Being the subject of an IRS audit is enough to make anyone sweat, but knowing your rights and the type of audit your facing can help make the process a little less stressful and drawn out.
“There’s a lot of fear when you find out you’re getting audited,” says Mary Kay Foss, a certified public accountant. She suggests contacting a professional immediately after receiving the audit notice. “If you ignore it, it’s not going to go away.”
There are four types of IRS audits and you will prepare differently for each one:
Correspondence Audit: This is the least severe type of audit, according to Rocket Lawyer On Call attorney Mark Rosenberg and involves the IRS sending a letter in the mail requesting more information about part of a tax return.
For instance, the agency may have questions regarding charitable deductions and request you send in receipts to substantiate your deduction. “It’s the lowest level of the audits,” says Rosenberg. “If you have the receipts or information it’s generally not an issue.”
If your tax return is legitimate and you have the data to back up any claims on your return, tax professionals say 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 fines, penalties and interest if you end up owing money.
“If it’s small and not that much income, the audit is often done through the mail,” says Bill Smith, managing director of accounting firm CBIZ MHM.
Office Audit: If the IRS has more questions about your return, then you’ll get a letter in the mail inviting you into an IRS office for the audit. The office audit is more serious, so you may want your tax preparer, accountant or tax attorney to come with you.
“With an office audit the IRS will wrap everything up in one day,” says Foss. “If they need additional records, you’ll have time to supply the missing information.”
Field Audit: This is the most serious type of audit and involves the IRS visiting you at your home or office.
“The reason the field audit is more serious is the IRS auditor will ask to see other things,” says Rosenberg. “They don’t want to limit it to particular items.” While there are much fewer field audits than office or correspondence audits, Rosenberg says he wouldn’t let any client go into a field audit without representation. “It’s the most serious level of audit. If they are coming out to you, they are looking for something.”
Random Audits: IRS agents aren’t looking for anything in particular when they send out random tax payers to review their return, according to tax experts the IRS, but they will review the entire return.
Rosenberg says the IRS conducts these audits to determine what areas are most likely to produce additional taxes. “Unless you have some exposure, you don’t have to hire a professional,” he says of these audits. “[They’re] the the most comprehensive. The IRS looks at everything on the return, even though it’s not based on anything on the return.”
While the seriousness of the audits varies, tax experts say the best way to prepare is to always organize all your receipts with your accompanying tax return and store them some place safe since it’s likely you won’t get an audit notification until 12 to 24 months later after you file.
“It becomes so much harder to get the documents together if a year or so has past,” says Smith. “When you file your return you are better off building a file and organizing them in anticipation of an audit than reacting to an IRS audit.”
If any part of your return worries you and the IRS is breathing down your neck, experts advise bringing in a tax professional to help curb any worries or fines.
“Individuals have a tendency because they have no experience dealing with the IRS to say way too much, give away too much and admit too much,” says Smith. “You don’t want to give them information they haven’t asked for.”