Types of IRS Audits

There are four different types of IRS audits. While none of them are pleasurable, there are notable differences. Each type of audit is unique in the way it is handled. Additionally, each type of audit is specifically aimed toward a select group of taxpayers being audited.

The first type of audit is a correspondence audit. You will receive a letter from the IRS requesting that you provide certain documentation in order to verify information that you have stated on your return. This information is to be sent back via the mail service and no in person meeting is required. This type of audit usually happens to individuals and is not geared towards complex tax returns or business entities.

The second type, an office audit, is where the IRS sends a letter requesting that either you or your representative bring certain documentation to the local IRS office. This type of audit usually applies to small business or sole proprietorships where sales are less than $500,000. In an office audit, a local auditor will examine the documentation produced.

The third type of IRS audit is the field audit. This audit usually happens to incorporations and partnerships. The IRS auditor will call the owner, partner or agent, inform them that they have been selected for an audit and set up an appointment to meet in person. This type of audit is called a field audit because the auditor will want to meet at your home or place of business. Inviting an auditor into your home or place of business is discouraged whenever possible. Try to arrange the meeting at your tax advisor’s office or other professional agent that you use. The auditor will want to interview the principals of the business and determine where your records are located. It is strongly recommended that you obtain representation if you receive a field audit, as this is usually a “fishing expedition”.

The last type of audit is a Taxpayer Compliance Measurement Program audit. This is used to update the scoring program the IRS uses to select future audits. You business will be audited on every line item and this is very time consuming. Records, invoices, checks, time cards and receipts will have to be produced. In a TCMP audit, a full audit is conducted, and every piece of documentation must be produced.