No one wants to receive letters in the mail from the IRS, let alone one that notifies you that your tax returns has been selected for audit.  What criteria does the IRS use to select returns for audit?  And what happens during an average IRS audit?  This article will discuss answers to those questions, along with how Urban Tax Law helps its clients who are under audit from the IRS.  

The primary reasons returns are selected for audit are (1) claimed credits or deductions that vary significantly from other taxpayers with similar incomes (for example, you earned $70,000 and deducted a $40,000 charitable contribution), (2) information on your return differs from amounts reported to the IRS (for example, you received a $25,000 retirement account distribution and did not report it), (3) the IRS audited someone else that you are linked to in some way (same preparer, same business, etc), or (4) IRS initiatives to review returns with specific items reported (such as cryptocurrency).

If your return is selected for a field audit, an IRS Revenue Agent will be assigned, and their first action will be to send you a letter with their contact information and request a live interview. They will follow up with an Information Document Request, or IDR, that asks for information and documents verifying certain income items on your return.  You may go through several rounds of IDR’s and responses with the Revenue Agent.

Ultimately, the Revenue Agent will issue a Revenue Agent Report, or Examination Report, that details their proposed adjustments to your return, proposed additional tax due, and proposed additional penalty.  After reviewing the Examination Report, if you disagree with the results, you have the right to send in additional information, request a closing conference with the Revenue Agent’s manager, or file an appeal.     

If you do not exercise any appeal rights, the Revenue Agent will send a Notice of Deficiency with their final adjustments.  This letter gives allows for 90 days to file an appeal to the U.S. Tax Court.  If you do not appeal, the proposed tax, penalty, and interest from the Notice of Deficiency become final.  When your appeal rights expire it becomes very difficult to challenge the underlying liability, so pay attention to those deadlines!   

At Urban Tax Law, we can help you with every stage of the audit process.  After opening your case, we takeover as the contact with the IRS (so you do not need to talk with them), we help evaluate your case and prepare a strategy for the audit, we prepare and present your submissions to the IRS, fight penalties, and we try to bring the audit to an efficient close .  And, if the IRS’s determinations are incorrect or unreasonable and they won’t fix them, we help determine that best way to exercise your appeal rights.