The four common types of IRS audits

Learn about the 4 commons letters & what to do

The IRS has an arsenal of form letters they send out concerning questions they have about your tax return. Each letter has a number assigned to it which is printed at the top or bottom.

Here I discuss the four most common audits that are sent out: a Request for Information (CP2000), a Correspondence Audit 566(CG), an Audit at the IRS Office (Form 3572), and a Field Audit.

1. Request for Information (CP2000)

This is not really an audit at all. If your notice letter has CP-2000 written on the heading or at the bottom of the page is simply a request for information.

Most of the time these letters are asking about income you forgot to report on your tax return. These letters often include bank interest, securities transactions, W-2 income, or other income items which the IRS has reason to believe should have been reported on your tax return. Sometimes this income was actually reported on the return but the IRS was unable to match it up with records on their end.

Your letter will include a “worst case” tax calculation with a demand for payment. Often time we can reduce the tax demands significantly.

You must act quickly to resolve these letters. A CP-2000 letter is the lowest level of IRS audit notification. You do not want the situation to escalate into something much worse. Most of the time we must amend the original tax return to include the omitted income and calculate the actual tax due. In many instances there are offsetting expenses which reduce your tax liability far below the “worst case” scenario in the IRS demand letter.

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2. Correspondence Audit 566(CG)

Most of these letters have form 566(CG) written on the letter. This type for audit is preformed through the mail. Do not think that just because you will be mailing your proof of deductions you can take it lightly. Do your best to provide every scrap of evidence to support your deduction. This type of audit is usually very specific as to what they are questioning on your original tax return. Most of the time the IRS will focus on issues like: business deductions, un-reimbursed employee expenses, of itemized deductions. If you can support your deductions the audit can be quickly resolved.

We can help you assemble your substantiating paper work in a manner the auditor will easily understand. We understand the tax code and more importantly your rights as a taxpayer.

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3. Audit at the IRS Office (Form 3572)

Your audit letter from the IRS will usually have form 3572 written on it. It is directed at self-employed people or those operating small businesses. The letter will have a list of items they want to look at. There are several other letter types which ask you to stop by the IRS office and explain your tax return. These examinations take several hours.

We pride ourselves in being extremely organized in preparing for these meetings. Most of the time the client does not need to appear for the interrogation. Our goal is to provide the auditor with the information necessary to quickly resolve the audit.

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4. Field Audit

This is the most comprehensive form of IRS audit. Field auditors will stop by your home or place of business to determine if your deductions are accurately stated on your tax return. They will want to see any business equipment you purchased and claimed as a deduction. Often time these audits require several visits and are the most difficult to resolve.

Our goal is to reduce the interruption to your business as much as we can by resolving the audit quickly.

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If you’ve received an audit letter, get help.

Any audit letters sent out by the IRS merit professional attention. If you have received an audit letter, we highly recommend you contact a tax professional immediately to help you resolve the matter. Tax professionals know the tax code.

You may think you know what they are asking for. IRS rules can be confusing. Sometimes you can create a bigger problem for yourself because you do not know the rules. You may have perfectly legitimate deductions. Making a single wrong statement can cause the auditor to disallow thousands of dollars in deductions.

Our goal is to resolve your audit as quickly as possible. If you cannot adequately substantiate deductions on one tax return they can go back and look at prior years to see if you claimed the same deduction in multiple years. Paying additional taxes for multiple years can compound the amount of interest and penalties you owe. Hire a professional to help you navigate the IRS maze.

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Randy Ames, tax preparation expert and owner of ABC Tax Service in San Diego.

Randy Ames, owner of ABC Tax Service, San Diego

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