IRS Audit Process for DC Taxpayers

The IRS’ Small Business and Self-Employment Office typically conducts audits of individuals, regardless of whether they are self-employed or not. Large businesses and small businesses are audited by different offices, which each understand that type of business.

All audits begin with a mailed notice to the taxpayer stating they have been selected for audit, including which year(s) have been selected. For businesses, the IRS will mail the notification to the business address, with the attention of the officer who signs the return, or to the listed point of contact.

DC taxpayers can reach out to our law firm if they are facing the IRS audit process. Our tax controversy specialists and IRS audit attorney can do everything possible to assist you in this situation.

Do I Respond to a Notice of an Audit?

The IRS will either conduct an audit by mail or through an in-person interview. During a mail audit, the taxpayer can request an in-person meeting if they believe it will be more efficient due to the number of documents.

If the taxpayer does not respond to a notice of an audit or send any information to the IRS, the IRS makes changes to the tax returns based on the information they have, which is typically less than what the taxpayer has. After review of the documents provided by the taxpayer and available through other sources, the IRS will issue a Notice of Deficiency, requesting payment of the additional tax related to the changes they made on the tax return.

Once a taxpayer receives the Notice of Deficiency, they have 90 days to petition the U.S. Tax Court to challenge the changes. If a taxpayer ignores all these steps, then the IRS will take action to collect the additional tax, including filing liens and issuing levies, depending on the severity of the case and the taxpayer’s financial situation.

A DC taxpayer is allowed to have an attorney respond to the IRS on their behalf during an audit. An experienced attorney can support your positions taken on the tax return and avoid an audit expanding to other areas.

The Primary Stages of an IRS Audit

The first stage of an IRS audit is their decision to audit the taxpayer and alerting them with a notice. The second stage is information requests. The IRS will request information from the taxpayer, who will provide that information and any needed explanations. This stage can go back and forth, with potentially multiple information requests, depending on the size and scope of the audit.

Once the IRS has all the information that they need, they will draft an audit report, noting any changes to the tax returns included in the audit and the taxpayer has 30 days to review it, provide more supporting documentation if they disagree with any findings, and can meet with the supervisor to help finalize the report.

The final stage is the final audit report. The taxpayer can accept the report, pay any additional tax, or appeal the report to the IRS Appeals division.

IRS Questions and Documentation Requests

The IRS will request documentation of support for different positions the taxpayer has taken, as well as general information relating to the audit, how the taxpayer receives income, what they do for work (or what the business does), and what kinds of deductions or credits they took.

The government has broad discretion when requesting documents or information, as long as it relates to any source of income or deduction. Generally, the IRS can go back three years to conduct an audit. If they identify serious errors or fraud, they can search further back than that. However, it is rare to go back more than six years to conduct an audit.

What is a Field Auditor?

A field auditor is a representative from the IRS who goes to the home or place of business and conducts the audit in-person. This allows the IRS to review the books and records in a quick and efficient manner.

The field auditor will conduct the audit in-person at the taxpayer’s place of business or home, and have an easier time reviewing the books and records in the way that the IRS would like to see them, as opposed to the way it may be provided to the IRS during a mail audit.

What Should a DC Taxpayer Avoid Doing While an Audit is Being Conducted?

A taxpayer should avoid filing any tax return. It is likely that the issue the IRS is auditing is repeated consistently, year after year, for that taxpayer. If they file a return with the same issue, it can become part of that audit, which may lead to scope creep; and if the taxpayer changes their reporting, it can also become part of the audit. But that does not mean they should stop paying estimated tax payments or quarterly tax payments, depending on the situation, because they will still have an amount due on the normal deadline.

Call Our DC Attorney If You Are Being Audited and Need to Know the Process

At this point, there are a couple of different audit outcomes, which may or may not require further action on your part. It is important to be patient and cooperative during audits, but also push back against any finding you believe to be incorrect. Our tax attorney can help you do that.

Call our Washington DC office now and learn more about the IRS audit process and what your role will be while it occurs. We have Enrolled Agents who understand audits and what you should do when one occurs.