What To Do When You Receive IRS Notices 

  • Promptly review your tax returns versus notices. Most of the time there must be a reason you receive notices.

  • Respond to Taxing Authorities within their time frame. If you are unsure how to handle the issues, seek for professional helps from licensed and experienced audit experts such as Certified Public Accountants or Lawyers.

 

  • Stay calm. However, do not ignore IRS notices or letters. Make appointment to meet tax audit experts the sooner the better because your time is essential.

IRS Audits & Examinations 

 

The IRS tax system is one of the most sophisticated structures. Per IRS publication 556, taxpayer’s return may be examined or audited based on a number of reasons:

The IRS enforces a program "Discriminant Inventory Function System" (DIF) to assign a score to each individual and some corporate tax returns after they have been submitted and processed. Tax returns with a high assigned (DIF) score have higher probability of being selected for examination.

 

In addition, taxpayer’s return may also be selected for examination or audited on the basis of income or deduction information received from third parties that does not match with information reported on taxpayer's returns.

 

Generally, there are 4 common types of audits: Correspondence Audit, Field Audit, Office Audit and Taxpayer Compliance Measurement Program Audit.

  • Correspondence Audit. This is the most common and lowest level audit. The IRS needs additional information from taxpayers to verify, and taxpayers will be asked to submit them within a time deadline, normally 30 days.

  • Field Audit. In a field audit, most likely for businesses, an IRS agent will come to taxpayer's business or home to examine all records. Field audit is one of the most comprehensive audits.

 

  • Office Audit. During office audits, taxpayers have to go to an assigned IRS office to meet with IRS assigned agent. Office audits are complex and involve with more steps, time-consuming and potentially have more issues.

  • Taxpayer Compliance Measurement Program (TCMP) audit. TCMP works on randomly selected basis. In a TCMP audit, every line of the tax return is audited and taxpayers have to provide documentation for all deductions.

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