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The Examination Process

After a return is selected for audit, it is scheduled for a review by an IRS agent in either a correspondence examination, office examination, or field examination. The type of examination to which the taxpayer is subject is generally determined by the audit potential of the return, the nature of the asserted error, and the type of taxpayer.
Correspondence Examination:

Correspondence examinations are those that can be handled routinely through the mail. Most originate at the IRS Service centers and involve routine requests for supporting documents such as canceled checks or some other written instruments. A written reply to the questions raised, along with copies of supporting documents, usually complete the examination. However, a taxpayer who is subject to a correspondence examination is entitled to the same administrative and judicial appeal rights that are allowed to persons who are involved in office or field audits.

Office Examinations:

Office examinations are conducted at the local district office of the IRS. The taxpayer is notified by letter of the date and time of exam, as well as the items for which proof is requested. Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. If you filed a joint return, either you or your spouse, or both, can meet with the IRS. If you want someone to represent you in your absence, you must furnish that representative with written authorization. If you want to consult an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return, or collecting tax, the IRS will suspend the interview if you are there because of an administrative summons.

Field Examinations:

Examinations that present complex issues that require more advanced knowledge of the Internal Revenue laws and accounting skills are usually conducted at the taxpayer's place of business. A field examination is more comprehensive than a correspondence or office examination, and it is usually limited to an examination of corporation and individual business returns. While an office examination is ordinarily limited to items that are specified in the audit notification letter, a field examination may be open-ended. In a field examination, the revenue agent reviews completely, the entire financial operations of the taxpayer, including their business history; the nature, amount, and location of taxpayer assets; the nature of the business operations; and other financial attributes of the entity. As with office examinations, IRS agents must follow their own rulings on matters of law and are accorded a great deal of latitude in settling matters of fact.

You can make an audio recording of the examination interview. Your request to record the interview should be made in writing, and you must notify the examiner 10 days in advance and bring you r own recording equipment. The IRS can also record an examination. If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. Generally, your return is examined in the IRS district where you live. But, if your return can be examined more quickly and conveniently in another district, you can ask to have the case transferred to that district. The IRS tries to avoid repeat examinations of the same items. If you r tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, you should contact the IRS as soon as possible to see if the examination should be discontinued.

How to Stop Interest From Accruing:

If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest on the amount you think you will owe. You can send an amount either in the form of a deposit (cash bond) or as a payment of tax for all, or part of the amount you think you will owe. Both a deposit and a payment stop any further accrual of interest, however, making a deposit or payment of tax will stop the accrual of interest on only the amount you sent. To stop the accrual of compound interest, you should also include payment for any interest that is due.

Deposits differ from payments in two ways. You can have all or part of your deposit returned to you without filing for a refund. However, if you request and receive your deposit and the IRS later assessed a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. Also you r deposit will not be returned if the IRS assesses a tax liability; the IRS determines that by returning the deposit, it may not be able to collect a future deficiency; or the IRS determines that the deposit should be applied against another tax liability.