The Internal Revenue Service's audit selection procedures and audit notification procedures require the agency to send taxpayer notification letters after they are selected for a tax audit. Auditors do not have to notify taxpayers of the selection by registered mail. After notification, taxpayers can officially file a request asking the auditor to conduct the audit at a specific location, but the IRS has the discretion to decide whether to grant the request.
Audit Selection Procedure
The IRS selects taxpayers for audit by using several selection procedures. The IRS may randomly select taxpayers or use software programs that select taxpayers based on statistical formulas. The IRS also uses document-matching tools to select taxpayers when their tax records do not match the federal government's information from W2 forms or 1099 forms. The IRS can use related examinations to select taxpayers. Related examinations records include information reported by other taxpayers or related business partners and investors the IRS selected for an audit.
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The IRS notifies taxpayers of an upcoming audit by mail or telephone. The IRS does not have to use registered mail to notify taxpayers of upcoming audits and audit selections. The IRS may also notify taxpayers through telephone but must send a confirmation letter by mail when notifying taxpayers by phone. The IRS does not contact taxpayers through e-mail due to the federal disclosure requirements.
Audits by Mail
The IRS can conduct an audit in person at the taxpayer's business, where the taxpayer stores tax records or at a local IRS office. The IRS can also conduct an audit by mail. If the IRS conducts the audit entirely by mail correspondence, the IRS sends letters to taxpayers requesting specific documents and tax information. Under the Internal Revenue Code, taxpayers can object to audit by mail through a written request for an in-person audit in case the taxpayer's records are too extensive to send by mail.
Audit Periods and Records
Generally, the tax code allows the IRS to audit records within the last year. However, if the IRS finds a substantial mistake or error on the taxpayer's returns or on other tax information, the IRS can review records for the past six years. Generally, most audits are for tax returns the taxpayer filed in the last two years. The IRS mails written requests for the specific information the taxpayer must provide. Tax laws require taxpayers to retain tax information for at least three years from the date of filing. Taxpayers have legal rights during a tax audit and a right to obtain representation during the audit. Taxpayers also have rights to disclosure. Taxpayers have rights to know why the IRS is requesting specific information and how the IRS can use that information.
Since tax laws can frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.