48.3 Audit Overview

When you file, the IRS checks your return for computational accuracy and clerical errors, such as a missing signature or missing or inaccurate Social Security numbers. To check whether you have omitted income from your return, the IRS will match your return against the Forms W-2 and Forms 1099 it receives from employers, brokers, payers of interest and dividends, and others who have filed information returns reporting payments to you.

If an error is found, or you have not submitted required attachments, you will probably be advised by mail of the corrections and of additional tax due, or you may be asked to provide additional information to substantiate tax deductions or credits. If you disagree with an IRS assessment of additional tax, you may request an interview or submit additional information. If you file early for 2012, are advised of an error, and the correction is made before April 15, 2013, interest is not charged.

If your refund is selected for a more thorough review, you will be notified by mail. This may not happen for a year or two; see 48.2.

Types of audits.

An examination may be held by correspondence, at a local IRS office, or at the taxpayer’s place of business, office, or home. An examination at an IRS office is called a desk or office examination; an examination at a place of business or home is called a field examination. When you are contacted by the IRS, you should receive an explanation of the examination process.

In a correspondence audit, the IRS sends you a letter asking for additional information about an item on your return. For example, the IRS may ask you to document a claimed deduction for charitable contributions or medical expenses. If the IRS is not satisfied with your response, you may be called in for an office audit. The IRS also notifies you by letter of mathematical or clerical errors you have made on your return, or if you have failed to report income, such as interest or dividends, that are shown by payers on information returns and matched to taxpayer returns by IRS computers.

Filing Tip

Authorize Someone To Discuss Return Processing Problems

Generally, a person authorized to practice before the IRS may discuss your tax return issues with the IRS only if you sign a power of attorney on Form 2848. However, just above the signature section of your 2012 Form 1040, 1040A, or 1040EZ, you may consent to contacts between the IRS and your designee to resolve return processing issues such as mathematical errors, missing return information, or questions about refunds or payments. The designee can be a friend or relative and need not be a tax professional. A power of attorney will still be needed to handle an audit, underreported income issues, appeals within the IRS, and collection notices.

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The complexity of the transactions reported on a return generally determines whether a return will be reviewed at an office or field examination.

Most audits of individual returns, except for returns reporting self-employment income, are conducted at IRS offices. An office audit usually covers only a few specific issues which the IRS specifies in its notice to you. For example, the examining agent may only be interested in seeing proof for travel expense deductions or educational expenses.

Field audits generally involve business returns; they are more extensive and time-consuming than office audits and are handled by more experienced IRS agents. For self-employed individuals, most examinations are field audits at their place of business. It is advisable to have a tax professional go over the potential weak spots in your return and represent you at the examination.