Mar 5, 2008

IRS Audits - should I be concerned?

The IRS has many ways to examine you including (in order of their intrusiveness and severity):

1. Correspondence Audits= mail audits including underreporter audits (i.e. CP2000 letter), substitute for return (i.e. "SFR"- where the IRS files a return for you), and specific item audits (by a Tax Auditor, Tax Examiner, Compliance Officer or other similar name) on a filed return (timely or late filed)
2. Office Audits- usually conducted by a Tax Examiner or Tax Auditor or other similar titled individual- this is usually limited to a small income probe (maybe one indirect method of income verification- i.e. a bank deposit analysis) and verification of one to three deductions.
3. Field Examination- this is an examination by a Revenue Agent on an individual, a business or a combination of both

The biggest difference is that item #1 and #2 above is the IRS examining the tax return; item #3- the Field Examination is not an examination of your tax return- it is an examination of the TAXPAYER.

All three examinations are serious. However, I have rarely seen correspondence and office audits lead to criminal investigations. However, the goal of the Revenue Agent is to ultimately have a "fraud referral."

If you are under examination or your return needs review for any potential examination, you should consult a competent tax professional. IRS Audits are serious- especially if the person calling or at the bottom of the letter is titled "Revenue Agent."

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