Income Tax Audits
There are two types of Income tax audits: Correspondence audits, and In-person audits.
If your audit is a correspondence audit, you’ll be asked to provide additional information related to an item or items on your return. For the most part, this will be a fairly straightforward process – for example, if you’re asked to substantiate your charitable contributions, you simply photocopy your receipts and/or check copies and mail them back to the IRS. Do not send originals to the IRS – they will not be returned.
However, you should keep in mind that some items – vehicle mileage, for example – require higher levels of substantiation. It’s not enough to send in your gas receipts – you must provide more details – basically, you need to keep a log. In those cases, failure to provide the right information will result in the expense being disallowed.
Â If your audit is an in-person audit, then the Revenue Officer conducting your audit will begin by sending you a pair of documents: First, you’ll receive the audit notice. Second, you’ll receive a document titled “Information Document Request” (or IDR for short). It’s important to note that the Audit Notice controls, so if the Audit Notice states that the last two tax years are being audited, but the IDR only asks for information for one tax year, Revenue Officer can (and often will) ask for the second year’s information when they arrive. The IRS can only audit years under notice, and only examine documents listed on the IDR.
If you own a business, the IRS will want to see the business in order to verify its existence, and identify potential new audit issues.
Once the auditor has completed their work, they will issue a Revenue Agent’s Report (RAR) in which they detail the items audited, and their determination. You will be given a copy, and allowed the opportunity to correct errors, or supply additional information. The auditor will then issue a Notice of Proposed Adjustment.
If you’re facing a federal income tax audit and would like to know what to expect or would like someone to represent you, contact our office at (818) 480-3280 to set up an appointment. We’re here to help you through this process.