How Does the IRS Determine the Scope of the Audit?
The IRS examiner performing the audit will select items that are worthy of examination. In selecting items for examination, the IRS examiner will choose items on the taxpayer’s tax return so that, with reasonable certainty, all items necessary for a substantially proper determination of tax liability can be considered.
Can the IRS Expand the Scope of the Office Audit?
Prior to the in-person office audit meeting, the IRS tax auditor will inspect the checklist of items that the IRS has chosen to investigate for the particular taxpayer. Although the office audit is confined to the predetermined list of items contained in the notice letter, the tax auditor has the discretion to expand the scope of the IRS audit depending on the information he or she learns over the course of the office audit. Internal Revenue Manual 18.104.22.168.1 instructs the auditor that the scope of the examination should not be limited to the classified items if other significant issues are revealed during the examination. For this reason, it is always a good idea to keep your responses brief. Do not provide extra information if it is not necessary.
What is the Scope of a Field Audit?
In a field audit, the IRS examiner is not limited to a predetermined list of items to investigate during the audit. Instead, the scope of the field audit is determined by the IRS examiner during the course of the audit itself. However, the field audit letter you receive from the IRS will generally tell you the list of items the IRS intends to examine and will also inform you which documents you should be prepared to present during the examination.
Does the IRS Need to Inform Me if it Expands the Scope of My Audit?
Yes, you will be informed if the IRS is expanding the scope of your audit. In an office audit, the examination is limited to those items on the predetermined checklist of issues scheduled for examination. However, the examiners performing the audit are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed. As the scope changes, you will be informed that the IRS intends to examine additional items on your tax return.
In a field audit, there is no predetermined list of items which the IRS intends to examine. For this reason, the scope of the audit can change during the course of the audit as the examiner conducts his or her investigation. The field audit is more comprehensive and more problematic for the taxpayer for this reason.
Can the IRS Expand the Scope of the Audit to Include Additional Tax Years?
Yes, the IRS can decide to expand your audit to include additional tax years. If during the course of the examination, the scope of the examination is expanded to include another tax period(s), the IRS must notify you in writing of the expansion. If you have already elected a power of attorney for the first audit year, but the power of attorney does not cover the tax period(s) being picked up for examination, the IRS must give you additional time to secure a power-of-attorney for the additional tax period(s). Also, the examiner must allow you sufficient time to submit records on the newly added year.
When is a Tax Attorney Necessary In An Audit
The IRS has tremendous power to determine whether or not you owe money to the government, how much money you owe and to take very aggressive actions in collecting on that debt. If you were being investigated for a crime you would certainly not show up to be interviewed by the prosecutor without legal representation, and being audited is actually a very similar situation. It is always recommended that you discuss your situation and strategy with an experienced tax attorney and in complicated situations that you allow a tax lawyer to act as your representative throughout the audit process.
The Tax Lawyer - William D Hartsock has been successfully helping clients navigate IRS audits since the early 1980's. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858)481-4844.