IRS Audit
A formal examination by the Internal Revenue Service of a taxpayer's records to verify that income, deductions, and credits were reported correctly.
Detailed Explanation
IRS audits come in three forms: correspondence audits (handled by mail), office audits (in-person at an IRS office), and field audits (the most extensive, conducted at the taxpayer's home or business). The IRS generally has three years from the filing date to audit a return, extended to six years for substantial understatements and indefinitely for fraud or unfiled returns. Taxpayers under audit have the right to professional representation, and a licensed CPA or enrolled agent can communicate with the IRS on their behalf.
Key Points
- Three types: correspondence (mail), office (at an IRS office), and field (most extensive, at home or business).
- Standard statute of limitations is 3 years from filing; 6 years for a 25% or greater income understatement; unlimited for fraud or unfiled returns.
- A licensed CPA, enrolled agent, or attorney can represent you under a Power of Attorney (Form 2848) so you never have to speak with the IRS directly.
- Most audits are resolved by mail; the IRS proposes adjustments and you respond with documentation.
- Outcomes include no change, agreed (sign Form 4549), or disagreed (appeal to IRS Office of Appeals, then US Tax Court).
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Penalty Abatement
IRS forgiveness of failure-to-file, failure-to-pay, or accuracy-related penalties under specific qualifying circumstances.
Offer in Compromise (OIC)
An IRS program that allows qualifying taxpayers to settle tax debt for less than the full amount owed, when full payment would create a financial hardship.
IRS Installment Agreement
A formal payment plan with the IRS that allows taxpayers to pay tax debt over time, monthly, instead of in a single lump sum.
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