IRS Examinations (commonly referred to as Audits) come in various presentations. In most cases, the IRS can examine a taxpayer’s return up to three years from the due date from the return. There are also instances where the IRS has up to six years. Examinations can be broad and encompass every line item on the return or narrow with a singular focus on one issue.
The IRS also has the ability to expand the scope of an Exam to look at additional issues and even additional years, once the Exam is underway. The taxpayer’s goal in an Exam is to receive a No Change letter, indicating that the IRS is not going to change the return as filed. Even if Exam does propose changes to a taxpayer’s return, there are options. There is an Appeals function that reviews the determinations made by Exam. Taxpayers can also petition the U.S. Tax Court to dispute proposed changes.
Sometimes taxpayers do not participate in the Exam process and the IRS moves forward with the additional assessment. In those cases, an Audit Reconsideration can be requested. This process asks the IRS to consider information that was not presented at the time of the original Exam and to request that the additional assessment be changed. There are no Appeal or Tax Court rights under these circumstances.
Accordingly, the best Examination Defense begins with good returns preparation. But, even the most precisely and legitimately prepared return may simply present ratios or questions that will prompt the examination. At that point, it is important to act early and vigorously to prepare for the defense of all issues in the exam and to spot potential areas of additional risk. The best Audit Reconsideration approach also begins with preparation so as to present the best arguments and documentation with the first presentation.