What is an IRS Field Audit? 9 Important Things To Know

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Tax season is stressful enough, but when you add an audit to the mix, it can be even more harrowing.

If you’ve received notice that you’re up for an IRS field audit, it’s crucial to stay calm and be prepared so you know what to expect.

Read on for nine crucial things you should know about an IRS field audit so you’re prepared to handle whatever comes your way.

1. The Definition of an IRS Field Audit

There are three different types of audits that the IRS can perform. When it comes to detail, the field audit is the most intricate and intense.

When you get a field audit, an actual representative from the IRS will visit your home or place of business and examine your records. This in-person visit can make the whole process a lot more intense and much more stressful than a different form of an audit.

You’ll get a visit from an official IRS Revenue Agent who is usually a certified accountant. These reps have a solid understanding of the tax laws and undergo specialized training to ensure they’re operating within IRS guidelines.

2. Receiving Notification

You will receive an official “audit letter” from the IRS if you’ve been chosen for a field audit. Remember that no one from the IRS will attempt to contact you by phone. Make sure you respond to the letter as soon as you can and confirm that you’re available on the requested date.

Your letter will state that the IRS is requesting a meeting so they can look over your tax records. The letter will mention the specific tax year as well as a list of documents you should have ready. Make sure you gather all documents in advance so you can present them to the auditor.

3. The When and The Where

When you get your IRS audit letter, it will show the date and time when the field audit should take place. In most cases, it will happen either at your home if you’re self-employed or at your actual place of business.

A phone number will be listed on the letter so you can contact the IRS if you need to reschedule. If you need to change the date or time, make sure you notify the IRS immediately.

In most cases, field audits are geared toward businesses, so you can expect the audit agent to visit you directly at your company’s location. Notify employees about the audit ahead of time so they can be prepared as well.

4. Why You’re Being Audited

If you get a notification that the IRS wants to do a field audit, you’re probably wondering what caused the red flags to fly. In many cases, the IRS may believe you failed to report things like W2 wages, bank interest, or items like the sale of stocks or mutual funds.

In some cases, the IRS is alerted if you filed unusually high or seemingly questionable deductions on your return. They may also use analytics to determine if your return seems to have a high potential for error.

Data analytics called a DIF score is used by the IRS to screen tax returns. This score is short for Discriminant Index Function and has been used by the IRS since way back in 1969.

The information used to determine your score is classified but it analyzes different lines in your return to assign each one a specific numerical score. If the DIF indicates the possibility of an error, you could be flagged for an audit.

5. Should You Hire a Professional?

Dealing with an audit is never a pleasant experience, and you shouldn’t try to go it alone. A tax professional or tax lawyer can help you navigate the process, and they also know “how to speak IRS.”

It’s a good idea to hire a tax pro immediately, especially if you’re not sure how to produce the documents or provide the information the IRS needs. A tax service can analyze your information and make sure that you’re giving the auditor the info they need to make the process go smoothly. Tax service companies can also help you process any adjustments that are made to your return.

If you’re concerned about possible penalties or other legal issues, hire a tax attorney, too. Your attorney will speak on your behalf and represent you throughout the audit process. 

6. How to Avoid Trouble

One way to make your life more difficult during a field audit is to ignore the IRS or delay your responses whenever they have an inquiry. To keep yourself out of trouble, always respond quickly and thoroughly to any requests.

Almost all correspondence with the IRS will be done via mail, so write your responses in a clear, concise manner and keep copies of everything you send. Document the date you mail your replies and be sure to do so well before any deadlines.

If you’re not sure about certain items, make sure you ask the IRS for clarification before the day of the field audit. This will help to clear the air in advance so you can be fully prepared for what’s next. As long as you’re honest and open about your return, you should be able to avoid dealing with any serious repercussions.

7. Contesting an Audit

If you disagree with the results of your field audit, you have a right to file an appeal. Your auditor does not have the final say, so feel free to voice your disagreement, but make sure you do it through the proper channels.

If you want to contest a tax audit, you will need to file your case with the IRS Office of Appeals. Your appeal will be presented to an independent Appeals officer a few months after it’s filed.

Be patient while your appeal is in process and see if you can get a resolution. If you are unhappy with or disagree with the Appeals officer, you can still take the dispute to court to try and get a resolution.

8. Keep it Brief But Honest

When you’re dealing with a field audit, try to be as brief and succinct as possible with your answers. Never volunteer more information than you have to, and only speak when you’re asked a question directly.

The auditor may end up looking at other information if you say too much, so try to keep your comments to yourself and your answers short and to the point. If you do not have an answer for the auditor, simply tell them you will need to find out or consult your attorney and get back to them.

Of course, you should also be completely honest throughout the field audit process. Never lie to cover up an answer you don’t want to give, or else the auditor may find out later and you could be penalized. Honesty is always the best policy when it comes to dealing with taxes and the IRS.

9. Be Vigilant with Documentation

Since your initial audit notification letter will tell you what you’ll need, make sure you gather all of your documents together before the day of the field audit. Never give your original documents to the auditor or else they could get lost and you won’t have any recourse.

Make copies of every single document the auditor needs and put them all in an organized file. Even if you can’t come up with all the required documentation that they ask for, showing due diligence can go a long way with an auditor.

Try your best to prove that you followed the tax law and all requirements for deductions, even if you don’t have every single receipt. In many cases, as long as you can show that you followed the law, your deduction will be accepted with or without the backup docs. The IRS is fully aware that people lose files and sometimes things get mixed up in the shuffle.

Keep Calm and Audit On

If you’re facing a field audit from the IRS, there’s no need to panic. Remember to remain calm, gather your paperwork together, and speak to a tax professional if you need help.

With some proper planning and a positive mindset, you should be able to get through the audit virtually unscathed. Remember you can always appeal if you don’t like the outcome of the audit.

If you need fast action and proven results for your tax issues, be sure to visit our website and contact us today for a free case evaluation.

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