May 16, 2011

Mail Audits: Helpful or Harmful

Mail Audits: Helpful or Harmful Tax & Business

The number of audits completed through the mail has increased significantly over the past few years. Most times, when individuals receive audit correspondence from the Internal Revenue Service or a state agency, they expect that they will be meeting with an agent in their home or at an office. However, this is often not the case anymore.

In an effort to cut costs, the Internal Revenue Service, as well as many state, are now performing more audits through the mail. Mail audits are common when there are only one or two issues being reviewed, such as the home mortgage interest deduction or Schedule C expenses.

Audits completed by mail can benefit both the Internal Revenue Service and the taxpayer. They are efficient, low-cost, and are less invasive for the taxpayer. A face-to-face audit typically involves an individual’s entire tax return being scrutinized, but a mail audit focuses on a specific issue. Once the auditor has concluded the review of the issue at hand, an assessment or no-change will be issued and the case is closed. If a taxpayer has adequate records and understands what is being requested, the audit can be a relatively brief and straightforward experience.

However, there are many individuals who do not understand the language in the correspondence they receive from the Internal Revenue Service and cannot properly respond. It can be a frustrating experience for the taxpayer, and can wind up being very costly.

In preparation for any type of examination or notice, taxpayers should retain copies of all tax returns filed along with supporting workpapers. Maintenance of good records will eliminate some of the burden when notified of audit. Being prepared and having adequate and organized documents will expedite the audit process.

If the audit correspondence is confusing, taxpayers can call the Internal Revenue Service for further explanation or seek assistance from their accountant. Agents are often willing to work with taxpayers, or their representatives, to explain what is needed, the deadline for providing such documentation, and the consequences of the examination.

Whether an audit is performed in person or by mail, the taxpayers’ rights remain the same. See IRS Publication Your Rights as a Taxpayer (pdf).

Should you receive a notice related to your personal or business returns, we recommend that you contact your Marcum Tax professional for assistance with all correspondence.

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