Just because your income tax return has been selected for audit, don’t panic and believe the IRS is out to get you. It could mean your return has been selected as a part of a random selection process. However, in most cases your return was selected for audit because a deduction is out of the normal range for comparable returns resulting in a high numerical score being assigned to your return by the IRS’s analytical software. Your return could also have been selected as a result of a periodic IRS ""test"" compliance program.
The IRS is supposed to tell you why your return was selected for audit. Even though the bulk of the returns audited are selected because of a high numerical score, other criteria for selection include informants, your relationship to another taxpayer who are being audited, being part of a particular group that has been singled out for audit, or being part of an IRS project such as the auditing of all employers who use contract labor.
There are four different types of IRS audits:
A correspondence audit is a letter from the IRS Service Center requesting you send in documentation supporting certain deductions on the return. This type of audit is reserved for small, simple tax returns.
An office audit letter identifies specific items on the return that are in question and requests that you or your representative bring certain documents to the local IRS office for the auditor's examination.
A field audit is where an IRS auditor calls you to notify you that your return has been selected for audit. This type of audit is called a ""field"" audit because the agent will want to conduct the audit at your home or place of business rather than the IRS office. Most businesses are audited in this manner.
A Taxpayer Compliance Measurement Program audit is implemented to update the data used to write the computerized audit scoring program. It involves a total audit in which every part of the return must be substantiated by documentation.
It is recommended that you hire a tax professional to represent you in any type audit. The goal of the tax professional is to limit the scope and/or amount of information the agent examines. There is a risk that the agent will want to expand the audit into prior or subsequent year tax returns or will want to audit related returns. Your tax professional will discourage this as it increases your exposure and risk. Your tax professional will attempt to answer the agent's questions and provide documents in such a manner as to discourage the expansion of the audit into additional years and issues.
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