Friday, July 19, 2019

Understanding the Different Types of Audit

Most taxpayers dread the very thought of having to undergo a tax audit. In fact, they dread it so much that they don’t even realize that all audits are not created equally. In actuality, however, there are many different types of audits. And, while, hopefully, you will never have go undergo any of them, it’s still important to understand the different types of audits and how to best handle them.  

Correspondence Audits

The most common type of audit is a simple correspondence audit. These are fairly stress-free since you handle them, at least if all goes well, via mail.

The IRS will simply request to see copies of your receipts and/or other documentation, which you mail in. After reviewing the documents, the IRS agent will either approve your return as is or make any necessary adjustments, along with penalties if they apply.

While undergoing a correspondence audit is not ideal, it’s usually pretty simple and straightforward and nothing to worry about as long as you have all of your documentation in order.

Office Audits

Office audits are very similar to correspondence audits. The only difference is that, instead of mailing in your documentation, you are asked to bring it to an IRS office in your area.

This can be a bit more nervewracking than a mail or correspondence audit, but it’s still manageable if you have your documentation together. You’ll also be glad to know that these audits are fairly uncommon, so it’s not likely you’ll have to go through this hassle.

Field Audits

Perhaps the most nervewracking and most serious kind of audit is when an IRS agent visits you in your home or office. You should still be prepared with documentation, but know that agents don’t typically pursue this type of audit unless serious discrepancies are suspected.

If you have been asked to have a field audit or, really, any type of audit, it’s always a good idea to work closely with your financial adviser to prepare and to reconcile any discrepancies or problems if they exist. Of course, if you work closely with a financial professional from the start, you can greatly reduce your risk of any type of audit happening in the first place!