Columbus Tax Audit Defense

What is an IRS Tax Audit?

Briefly, an IRS income tax audit is an examination of a taxpayer’s federal tax return undertaken by the IRS in an effort to verify whether the return contains the taxpayer’s correct tax liability. Internal Revenue Code (“I.R.C.”) § 7602 grants the IRS the power to examine not only your tax return, but any books, papers, records, or other data that may be relevant to determine the correctness of your tax return.

Accordingly, it is extremely important to maintain adequate records to substantiate the accuracy of your return—and it is required by law under I.R.C. § 6001. If you have not maintained adequate records, and the IRS has instituted a tax audit, there are other options to substantiate the items on your return.

Why was Your Return Selected for an Audit?

The IRS uses several methods of selecting returns for audit. The most common method is called the Discriminate Function (“DIF”), which is a mathematical formula used to classify income tax returns as to their error potential.  A return with a high DIF score will be flagged at an IRS return processing campus and will be review by an IRS employee to determine whether the return should be audited.

The IRS’s return matching program can also trigger an audit if the figures on the return do not match amounts reported on informational returns.

Generally speaking, the IRS’s stated mission in auditing income tax returns is to promote voluntary compliance with tax laws. Tax audits also generate additional revenue for the federal government. The IRS believes that auditing taxpayers will serve as an incentive for them to report and pay tax properly.

What to Expect at an IRS Tax Audit

Once your return has been selected for audit, there are three main types of ways in which the audit may be conducted: (i) correspondence audits; (ii) office audits; and (iii) field audits. In tax year 2011, approximately 75% of the audits were conducted by correspondence. Correspondence audits are normally conducted by mail and are typically limited to verification of information that can be mailed back to the IRS. Correspondence audits are usually able to be resolved in short order.

Practice Pointer: Care should be taken when requesting an interview in response to a correspondence audit. If you request an interview, the audit will be transferred to an examining agent, which may lead to a more in-depth review of items on the return that may not have been reviewed during the correspondence audit.  See I.R.M. 4.71.11.5.

Office audits are usually conducted at the IRS office by a tax auditor. To schedule the office audit, you should receive a notice requesting a meeting with the auditor at the IRS office. The auditor will request certain documents to substantiate limited items of income or expense on your return. On the other hand, field audits are reserved for more complex business and individual returns. They are conducted by IRS revenue agents at a taxpayer’s place of business.

Whether your return is examined by a correspondence audit, office audit, or field audit, Porter Law Office, LLC has in depth experience resolving tax audits before the IRS and Ohio Department of Taxation. Contact the experienced tax attorney at Porter Law Office, LLC for a free case evaluation.

Audit Strategies and Planning Techniques at Porter Law

Preparation is key for an IRS tax audit. Beginning on the first day of the tax year, you should maintain records of all transactions. If you have not maintained complete records, the return items under audit must be substantiated and explained in a clear and concise manner. It is, therefore, highly recommended to be cooperative and proactive with the IRS during the audit so that there are no unintentional misunderstandings.

Our firm helps individuals and business resolve tax audits. If you’ve been audited, do not hestitate to contact us.