Business Law Group

Audit Defense

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Types of Audits

There are three types of audits, in increasing order of risk and complexity:

  • Correspondence Audit: As its name implies, this type of audit is conducted through the U.S. mail and is the most common type of audit. The IRS asks you to submit documentation through the mail to substantiate deductions or other items shown on your tax return. You may be required to provide copies of cancelled checks, evidence of payments, receipts, real estate documents, or supporting documentation as requested by the IRS.
  • Office Audit: This type of audit will generally take place, in person, at the local office of the IRS, where an examiner will ask you questions and review documents. These audits typically focus on specific areas of your tax return and can be very invasive, requiring significant document production. In defending an office audit, it is important not to unwittingly expand the scope of the audit into other areas of your tax return.
  • Field Audit: A field audit is conducted in the taxpayer’s home or place of business. These are generally the most invasive and serious type of audit, conducted by one of the IRS’s most experienced auditors.

Tips for Defending and Responding to an Audit

  • Prepare Your Records Carefully: Assemble and prepare your records to substantiate your tax position. BATES number your documents so that you can track and identify every document provided to the examiner throughout the audit.
  • Develop a Strategy: Before meeting with the examiner, develop a strategy for document production and responding to questions with an end goal of minimizing adjustments and avoiding penalties.
  • Do Not Volunteer Information: This tip is two-fold. First, do not provide answers to questions that were not asked. Do not talk more than necessary. Do not expand the scope of the inquiry. Second, do not bring documents to the audit that were not requested. You should be prepared to turn over any documents you bring to the audit. Do not encourage additional document requests by bringing unnecessary documents to the audit.
  • Strongly Consider Hiring a Competent Tax Professional or Attorney: A good CPA is often invaluable in defending an audit. However, a CPA is skilled at finding the correct, most accurate result. A tax professional or attorney is not only well-versed in tax laws, but is also trained and experienced in tax advocacy, negotiations, and litigating controversy.

Audit Results

  • No change: A “no change” determination is the best result you can achieve. It means that all items on your tax return have been adequately documented and properly stated. A no change determination resolves the audit.
  • Agreed: This result occurs when the IRS examiner proposes changes, and the taxpayer agrees with the proposed changes. An agreed determination resolves the audit.
  • Disagreed: This result occurs when the IRS examiner proposes changes, and the taxpayer does not agree with the proposed changes. The next steps may involve escalating the audit to the examiner’s manager or appealing the audit result. It may also result in litigation in either the U.S. Tax Court, the Federal Court of Claims, or the U.S. District Court.

Common Forms

  • IRS Form 2848

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Call the Colorado Tax Professionals and Attorneys at the Business Law Group at (719) 355-8840. This content does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.