February 26, 1997
The Examination (Audit) Process Purpose
The IRS examines (audits) tax returns to verify that the tax
reported is correct. It is not an attempt to increase the tax.
Selecting a return for examination does not suggest that the
taxpayer has either made an error or been dishonest. In fact, many
people may be surprised to know that many examinations result in a
refund to the taxpayer or acceptance of the return without change,
in addition to those that result in an assessment of additional tax.
The overwhelming majority of taxpayers file returns and make
payments timely and accurately. Taxpayers have a right to expect
fair and efficient tax administration from the IRS, including
verification that taxes are correctly reported and paid and
enforcement of the tax laws on those who fail to comply voluntarily.
IRS trains its employees to explain and protect taxpayersþ
rights throughout their contacts with taxpayers. These rights include:
- a right to professional and courteous treatment by IRS employees;
- a right to privacy and confidentiality about tax matters;
- a right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided;
- a right to representation, by oneself or an authorized representative;
- a right to appeal disagreements, both within the IRS and before the courts.
How Returns are Selected for Examination
The Headquarters office in Washington has program management
responsibility, but cannot initiate or oversee the day-to-day
conduct of examinations.
An examination may be conducted by mail or through an in-
person interview and review of the taxpayer's records. The
interview may be at an IRS office (office audit) or at the
taxpayer's home, place of business, or accountant's office (field
audit). Taxpayers may make audio recordings of interviews, provided
they give the IRS advance notice. If the time, place, or method
that the IRS schedules is not convenient, the taxpayer may request a
change, including a change to another IRS district if the taxpayer
has moved or business records are there.
The audit notification letter tells which records will be
needed. Taxpayers may act on their own behalf or have someone
represent or accompany them. If the taxpayer is not present, the
representative must have proper written authorization. The auditor
will explain the reason for any proposed changes. Most taxpayers
agree to the changes and the audits end at that level.
Taxpayers who do not agree with the proposed changes may appeal
their case administratively within the IRS, to the U.S. Tax Court,
U.S. Claims Court or the local U.S. District Court. If there is no
agreement at the closing conference with the examiner, the IRS
notifies the taxpayer of the right to appeal. If the taxpayer does
not respond within 30 days, the IRS issues a statutory notice of
deficiency, which gives the taxpayer 90 days to file a petition to
the Tax Court. The Claims Court and District Court generally do not
hear tax cases until after the tax is paid and refund claims have
been denied by the IRS. The tax does not have to be paid to appeal
within the IRS or to the Tax Court. A case may be further appealed
to the U.S. Court of Appeals or to the Supreme Court, if those
courts accept the case.
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