Tax Compliance, the IRS, and Tax Authorities
Problems 6, 8, 9, 13, 14, 20, 23, 24
[LO2] Describe the differences between the three types of audits in terms of their scope and
The three types of IRS audits consist of correspondence, office, and field examinations.
Correspondence examinations are the most common.
These audits (as the name suggests) are
conducted by mail and generally are limited to one or two items on the taxpayer’s return.
Among the three types of audits, correspondence audits are generally the most narrow in scope
and least complex.
Office examinations are the second most common audit.
As the name suggests, the IRS conducts
these audits at the local IRS office.
These audits are typically broader in scope and more complex
than correspondence examinations.
Small businesses, taxpayers operating sole proprietorships,
and middle to high-income individual taxpayers are likely candidates for office examinations.
these examinations, the taxpayer receives a notice that identifies the items subject to audit,
requests substantiation for these items as necessary, and notifies the taxpayer of the date, time,
and location of the exam.
Taxpayers may attend the examination alone or with representation
(e.g., tax adviser, attorney, etc.).
Field examinations are the least common audit.
The IRS conducts these audits at the taxpayer’s
office (i.e., place of business), or the location where the taxpayer’s books, records and source
documents are maintained.
Field examinations are generally the broadest in scope and most
complex of the three audit types.
They can last many months to multiple years and generally are
limited to business returns and the most complex individual returns.
[LO2] Compare and contrast the three trial-level courts.
The U.S. District Court is the only court that provides for a jury trial; the U.S. Tax Court is the
only court that allows tax cases to be heard before the taxpayer pays the disputed liability and
the only court with a small claims division (hearing claims involving disputed liabilities of
$50,000 or less); the U.S. Tax Court judges are tax experts, whereas the U.S. District Court and