Demystifying the 4 types of IRS audits

Receiving a notice from the Internal Revenue Service (IRS) about an audit can be daunting, especially when you do not know what to expect. The mere mention of an IRS audit often conjures images of intense scrutiny, mountains of paperwork and potential financial consequences.

Audits are a normal part of the tax system. They ensure compliance and maintain the integrity of the country’s tax structure. As you face this uncertainty, understanding the different types of audits may help alleviate some of this anxiety and prepare you for what lies ahead.

Correspondence audit

If you receive a letter from the IRS asking for additional documentation, you are likely dealing with a correspondence audit. This is the most common type of audit. The IRS may request proof to verify specific items on your tax return, such as employee expenses, moving costs, alimony payments or casualty losses. While it might seem simple, it is important to respond promptly and accurately with the requested information to avoid further complications.

Office audit

An office audit occurs when the IRS needs more clarification than a correspondence audit can provide. It requires you to meet face-to-face with an IRS agent at a local branch to present the requested documents and other information. This type of audit is common for small business owners or self-employed individuals with complex transactions.

Field audit

A field audit is the most thorough and intrusive type of IRS examination. During this, an agent will visit your home, business or accountant’s office to conduct a comprehensive review. This audit goes beyond verifying deductions and credits. It scrutinizes your lifestyle, business activities and overall income for accuracy. Many taxpayers find it beneficial to consult with a tax attorney for guidance through this process.

Taxpayer Compliance Measurement Program (TCMP) audit

In a TCMP audit, the IRS reviews every item on your tax return, requiring you to provide thorough documentation for every deduction and entry. Unlike a standard audit, where only select items are examined, a TCMP audit involves a comprehensive review of your entire return, making it essential to have meticulous records and documentation for every aspect of your tax filing.

Preparing for the unexpected

Regardless of the audit type, maintaining accurate records and organizing your financial documents throughout the year is crucial. If you receive an audit notice, take a deep breath and carefully review the request. Remember, most audits are resolved through simple correspondence or meetings.