Type Of Audits Or Examinations

In general, there are 4 types of audits:

  • Correspondence Audit: This is the most common audit. The IRS needs additional information from taxpayers.

  • Field Audit: In field audits an IRS agent will come to business or home to examine or audit records. 

 

  • Office Audit: Taxpayers have to go to an IRS office to meet with IRS agent. Office audits involve with more and complex details. 

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

The IRS Audit & Collection Process  

 

The IRS audit & collection process is a series of legal actions that the IRS can take to collect the taxes taxpayers owe. The Agency has a super power, nearly unlimited to do everything within its authorities to collect tax debts. Most State Taxing authorities have similar collection models. The IRS can collect taxpayer's tax debts up to 10 years or unlimited, depending on each specific audit case from the date they were assessed.

Per IRS publication 594, when taxpayers' tax returns are under examination or audit and taxpayers do not respond timely to IRS letters or satisfy the IRS questions or demands or final tax payment deadlines have passed after, the IRS may proceed with some but not limited to following actions:

  • Tax Liens. The agency can claim legal liens against taxpayer's properties or assets such as homes, cars, bank accounts, business, retirement accounts, Social Security benefits, etc., The liens give the IRS ownership and control of taxpayer's assets. These liens go into all public records and adversely affect credit history of taxpayers.   

  • Tax Levies. When tax liens are in place, the IRS notifies taxpayers at least 30 days in advance to provide a last chance to taxpayers by law for requesting a final hearing to challenge IRS tax levies. After this 30-day period passes, the agency may proceed and seize the assets of taxpayers such as bank accounts, cars, homes, business, boats, properties, etc. and sell them until all debts are paid off. 

 

  • Wages Garnishment. The IRS may continue to tap into taxpayer's current and future income sources. They may take their shares out of taxpayer's paychecks with a significant amount at each payroll until taxes are paid off. They may leave taxpayers small amounts to take home just enough to cover basic living expenses.

Recently the IRS and State Taxing Authorities have stepped up their policies to enforce higher penalties with multiple layers and accrued interest on top of the original tax debts. Tax debts are significant with higher interests and many penalties like a running snowball. In some situations, after critical audit cases, some taxpayers' financial lives have been turned upside down.

Under Section § 7201, beside monetary collection, taxpayers may be charged of tax evasion. Tax evasion is willful attempts to hide or fail to report taxes accurately, or the failure to pay taxes. Tax evasion is a felony. If the IRS proves its case for tax evasion against a taxpayer, the penalties can be significant including monetary fines and jail time.

Beginning October 2021, the IRS has contracted with three private Collection Agencies: CBE Group, Inc, Coast Professional Inc and Conserve. These companies, on behalf of the IRS, will collect tax debts from taxpayers. Taxpayers may be informed that their audit case has been transferred to one of these Collection Agencies. Now taxpayers will have to deal additionally with another middle man and both the IRS response systems and the agencies have slowed down significantly due to the Covid-19 Pandemic when your tax debts plus penalties and interest keep accruing each day.