For all taxpayers, getting audited by the IRS is a scary process. When an agency with virtually unlimited power wants to know about your finances, it is understandable that people get nervous. The truth is, the majority of audits are done by mail, these are referred to as “correspondence audits”, and they are usually not a big deal.

With a correspondence audit, a taxpayer receives a letter from the IRS inquiring about some aspect of their return. Typically, there is a specific deduction or some other area in question and a proposed change, usually resulting in you owing more taxes. If you agree with this change, you send them what you owe, they adjust your filing and you move on with life. If you disagree, you send them documentation showing why you are right, they examine your documentation and notify you to tell you they either accept or reject your assertion.

A “field audit” is a much scarier process than the correspondence variety. With a field audit, the IRS notifies the taxpayer to request that they come into the office to answer some questions about their return. With this type of audit, you need to have all the proper documentation to prove you are right and they are wrong, otherwise they are not likely to find in your favor.

Here is how the field audit process typically works:

1. At the initial meeting, the field examiner tells the taxpayer what he/she thinks they owe. If you agree with the field examiner’s proposal, you sign the form, pay the taxes, and move on. If you disagree with all (or part) of the proposed changes to your tax liability, you can request a meeting with the examiner and his/her supervisor.
2. If you are unable to convince the supervisor of your position, you have the right to request an administrative appeal.
3. If the administrative appeal does not go your way, you can take your case to tax court.

In general, it is best to try to resolve tax controversies with the field examiner or his/her manager, particularly if the amount in question is under $10,000. At the appeals and tax court level, things can get dicey and the IRS may even expand the scope of their examination to include other areas of your return that were not originally in question.

Do I Need Professional Audit Representation?

For a correspondence audit, you can probably resolve the matter yourself, particularly if it is a relatively minor issue. For field audits, however, it is a good idea to consult with a tax professional to make sure you have all the documentation you need to present your case. It is also a good idea to bring your CPA along with you to your audit, because CPAs have extensive experience with the process and can let you know what to expect and how to answer questions from the field examiner.