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What exactly is a correspondence audit?

As an individual or business owner, notification of a tax audit is the last thing you want to see. Even if everything is on the up and up, audits conducted by the Internal Revenue Service are still a tremendous imposition. After all, this is not something people should simply ignore; rather, it must be addressed.

It's also worth noting that the IRS has a variety of methods for selecting tax returns to audit and different means by which a person or business is audited. First of all, audits can be conducted completely at random or if tax documents do not match up. In other words, the IRS may take action for any reason -- or no specific reason at all.

Furthermore, correspondence audits are the most common type of audits conducted by federal tax officials. According to the National Taxpayer Advocate, 75 percent of the audits conducted for fiscal year 2011 were by correspondence. This means that the audits were automated and facilitated by U.S. mail, as opposed to an on-site visit from an IRS agent.

Although a correspondence audit may seem less stressful than dealing with the IRS face to face, reality may not align with this perception. The National Taxpayer Advocate thoughtfully points out that the automated nature of correspondence audits can make them very frustrating for individuals and small business owners.

First off, the IRS is very slow at responding to any documents sent in to resolve an apparent discrepancy in tax return filings. Not only that, but the IRS may ignore the documents entirely, which leaves taxpayers in a complete state of limbo.

To further complicate matters, no tax examiner is actually assigned to a correspondence audit case because the process is supposed to be entirely automated. As a result, it can be very difficult to deal with the IRS without a specific individual attached to your case. Reaching the federal tax agency by mail or phone is an exercise in patience.

The reality is that small business organizations or individual families may not have the resources or knowledge to handle a correspondence audit. Thankfully, there are resources available to ensure that no one has to go through this complex process alone.

Source: Taxpayer Advocate Service, "Are IRS Correspondence Audits Really Less Burdensome for Taxpayers?" Nina E. Olson, accessed July 25, 2014

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