Understanding Tax Audits

The mere mention of “tax audit” can make even the most seasoned entrepreneur apprehensive.  While not everyone will experience a tax audit – cross your fingers that you’ll never have to – no one really knows how the IRS determines who to audit.  What you may want to know is that there are different kinds of tax audits, and they’re not all that scary.

Correspondence Audit

This is the most common type of tax audit, and some tax experts don’t even consider a correspondence audit the “real thing.” The whole process is done via mail, wherein you will have to send in documentation that will provide the IRS with an answer to the item/s it is questioning. It is pretty straightforward and is nothing to worry about.

Office Audit

As the name implies, this kind of tax audit is done in an IRS office. You’ll also have to provide the IRS officer with documents, much like in a correspondence audit, but this time, you’ll have to show up. In an office audit, you will be interviewed by an IRS official.

Field Audit

This is the mother of all audits – when people from the IRS go over your books thoroughly. The one good thing about this type of audit is that you have the right to name the place and time of the field audit. Experts suggest that you choose a “neutral” place, such as your accountant’s office, for the audit. More so, take as much time as you need to get your records in order so that you will come out of the field audit unscathed.

In the next post, we’ll talk about some tips that can help you avoid being audited by the IRS.

Photo credit: mdid



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