A correspondence audit is an examination of a tax return that is conducted largely by telephone or mail. This type of audit usually involves substantiation or explanation of only a few specific items on the return. The Internal Revenue Service (IRS) often utilizes correspondence audits as an efficient way to verify certain aspects of a taxpayer’s return without the need for a face-to-face interaction.
Types of IRS Audits
Field Audit
A field audit is an in-person audit conducted at the taxpayer’s home, business, or accountant’s office.
Office Audit
An office audit requires the taxpayer to appear in person at an IRS office.
Correspondence Audit
A correspondence audit, in contrast, typically requires submitting documentation through mail or uploading information online.
Special Considerations in Correspondence Audits
Scope
Correspondence audits are generally limited in scope. They typically focus on one or two specific issues or discrepancies, rather than the entire tax return.
Documentation
Taxpayers are usually requested to provide additional documentation or explanation for the items under review.
Response Time
Taxpayers must respond within a specific timeframe (often 30 days) to avoid penalties and interest.
Examples
Verifying Income
The IRS might question reported income and request supporting documents such as W-2 forms or 1099 forms.
Claiming Deductions
If specific deductions seem out of the ordinary, the IRS might request proof, such as receipts or invoices.
Educational Credits
For claims related to educational credits, the IRS might ask for tuition payment receipts or enrollment certificates.
Historical Context
Correspondence audits have evolved with advancements in technology, becoming more efficient and streamlined. Historically, these audits date back to when the IRS first started using mail to handle less complex audits, and now they often make use of secure online portals for document submission.
Applicability
Correspondence audits are applicable to both individual and business tax returns. They are more frequent for individual returns, especially those with itemized deductions or multiple sources of income.
Comparisons
Correspondence vs. Field Audit
- Correspondence Audit: Conducted via mail, less invasive, focuses on specific items.
- Field Audit: Conducted in-person, more comprehensive, examines entire tax return and related records.
Correspondence vs. Office Audit
- Correspondence Audit: No need to visit IRS office, quicker resolution.
- Office Audit: Requires in-person meeting at an IRS office, could lead to more extensive examination if discrepancies are found.
Related Terms
- Tax Return: A tax return is a form on which a taxpayer makes an annual statement of income and personal circumstances, used by the tax authorities to assess liability for tax.
- IRS: The Internal Revenue Service (IRS) is the U.S. government agency responsible for tax collection and tax law enforcement.
- Substantiation: Substantiation refers to the evidence or proof required to support various claims made on a tax return, such as receipts or documentation.
FAQs
What triggers a correspondence audit?
How long does a correspondence audit take?
What happens if I don't respond to a correspondence audit notice?
Can I request a face-to-face audit instead?
References
- Internal Revenue Service. “Understanding Your IRS Notice or Letter.” IRS.gov.
- “Taxpayer Guide: Types of IRS Audits.” Tax Professional Resource.
- “How to Respond to a Correspondence Audit.” Taxpayer Advocate Service.
Summary
A correspondence audit is a limited-scope examination of a tax return conducted via mail or phone, focusing on specific items needing verification or explanation. It is designed to be a more efficient and less invasive method for both taxpayers and the IRS to ensure the accuracy of the reported tax information. Understanding the process and properly responding to such audits can help mitigate potential issues and resolve discrepancies expediently.
