Most taxpayers fear an examination (commonly referred to as an audit) of their tax return.

Over the past couple of weeks, I’ve written a blog giving you an “introduction” to the examination process, linked here, and also written about a taxpayer’s rights in an examination, linked here

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By The Book Taxes represents clients before the IRS and state taxing authorities to help them resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications. By The Book Taxes also represents clients in 1040 examinations or audits.

The two most common types of IRS examination  of an individual’s tax returns are:

  • Correspondence audits which frequently involve requests for records to substantiate specific tax return items, such as receipts to support car and truck expenses on Schedule C of the 1040, or cancelled checks to support charitable contribution deductions. The most common issue in recent years regards the claiming of tax credits like the EITC (Earned Income Tax Credit), Dependent Child Tax Credit and the American Opportunity (AOTC) and Lifetime Learning education credits for dependents. Typically, the IRS will request, by issuing “Letter 566”, copies of birth certificates, proof of residency and proof of payment in order to substantiate these. Of the approximately 900,000 audits conducted in tax year 2018, about 75% of them were correspondence audits and almost 40%, about 330,000, related to the EITC. These are large credits with a lot of fraud associated with them.
  • The Automated Under-Reporter Program (AUR) investigates discrepancies between income information reported on tax returns by taxpayers and what was actually reported to the IRS by third parties like employers, banks, investment companies and contractors. The IRS uses a “matching” program to compare what they get from you to what they get from others reported under your SSN or EIN. Taxpayers are notified of these mismatches by a “CP2000” letter. There are more than 10 million of these letters issued each year by the IRS.

A lot of the information contained in this blog came from “The PPC Guide to Dealing with the IRS”, Volume 1, chapter 5.

If you have years of unfiled tax returns or owe money to the IRS, please call me before the IRS finds you.  I can help.