Audit

To ensure that taxpayers voluntarily comply with the tax laws, IRS performs audits on a number of taxpayers. The IRS has many methods in which returns are selected for audits.  Some of the methods include audit by infection (related returns), the Discriminate Information Function (computerized scoring system for returns using many factors) and issue-related reasons.  The IRS has identified the Earned Income Tax Credit, an issue frequently seen in the clinic, as an isssue-related reason for conducting audits. Consequently, low-income taxpayers who take the EITC are frequently being audited.  In fact the U.S. General Accounting Office reported that in the past several years, forty percent of all individual return audits are made up of taxpayers in the lowest income bracket.

The IRS uses four methods of examinations: correspondence exams, office exams, field exams and employment tax audits. Clients of the clinic are most often audited by correspondence exams.  The other three methods are rarely seen in the clinic. Correspondence exams are conducted through the mail. Usually, the IRS will request that the taxpayer explain or send supporting documents to substantiate or clarify certain claims and matters.

In many instances, clients who come to the the clinic for assistance have already passed the audit stage, either because they have ignored the IRS notices or because they have not provided the IRS with sufficient evidence to resolve the dispute.

Audits are resolved in one of two ways: taxpayer’s agreement with the IRS’ findings or taxpayer’s disagreement with the findings. Clients who come to the clinic usually do not agree with the results of the examination. The IRS will issue a notice to the taxpayer called the 30-day Letter that will state the findings of the examiner and the taxpayer’s appeal rights.  Taxpayer will have 30 days from the date of the 30-day Letter to request a confererence with the Appeals Office.  If the taxpayer does nothing, then she will be sent a 90-day Letter (Statutory Notice of Deficiency).

Resources

Documents

Administrative 30-day Letter
Statutory Notice of Deficiency

Documents at IRS.gov

Your Appeal Rights and How To Prepare a Protest If You Don’t Agree
IRS Publication No. 5
Examination of Returns, Appeals Rights and Claims for Refund
IRS Publication No. 556