Should your account be selected for audit, we will notify you by mail. The IRS manages audits either by mail or through an in-person interview to review your 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.
Remember, you will be contacted initially by mail. The IRS will provide all contact information and instructions in the letter you will receive. If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions.
If you have too many books or records to mail, you can request a face-to-face audit. The IRS will provide contact information and instructions in the letter you receive.
These guides will give you an idea of what to expect. The IRS will provide you with a written request for the specific documents we want to see. The IRS accepts some electronic records that are produced by tax software. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what we can accept. The law requires you to keep all records you used to prepare your tax return — for at least three years from the date the tax return was filed.
For any delivery service you may use, always request confirmation that the IRS has received it. For example, if you use the US Postal Service, you can request one of their additional services to ensure delivery confirmation. For audits conducted by mail - fax your written request to the number shown on the IRS letter you received.
There are exceptions to the three-year ASED. Most audits are completed within 26 months 27 months for businesses after filing. As stated above, there are exceptions to this general time frame.
Taxpayers cannot control the amount of time it takes for the IRS to conduct an audit. IRS auditors sometimes they have too much on their plate to conduct the audit quickly.
It helps to understand the mindset of your auditors so that you can effectively deal with them during the examination.
However, taxpayers can follow a few tips to minimize their time with the IRS. Timely, complete responses are the key to resolving the most common audit — the mail audit.
Face-to-Face audit duration usually is dependent on the complexity of the taxpayer and the condition of their records. Most field audits are conducted on the most complex taxpayers, including business entities. Naturally, the field audit takes longer to complete. For Face-to-Face audits, the prepared taxpayer who is in a position to control the information flow with the IRS usually spends the least amount of time with the IRS.
A prepared taxpayer typically anticipates IRS questions and can provide answers that avoid additional IRS audit inquiries. However, appeals are important parts of the audit process. Taxpayers exhausted from the audit should always dispute valid disagreements, including penalty disputes, with the IRS Independent Office of Appeals. This extra time is usually worth the effort. One final tip: taxpayers should consider using a licensed tax professional to help with Face-to-Face audits and disputing audits with IRS Appeals.
Experienced tax professionals understand the audit process and how to effectively manage the audit to reduce the amount of time spent dealing with the IRS. Two words that make every taxpayer nervous: IRS audit. It also claims a huge reduction in audit cycle and has hinted of its intention to surpass the collection figure in The ambitious collection targets coupled with the claimed data on registered and unregistered companies not contributing to the Country's tax collection, signals an intending intensified effort directed at achieving the set targets.
No doubt, achieving the set targets would require broadening the scope of tax coverage, continued compliance drive by taxpayers, more aggressive and timely tax audits and investigations, and lots of emphasis on entities not currently contributing to the Country's tax collection. This briefing note aims to broaden taxpayers' understanding of tax audit and investigation processes, while also providing useful insights towards efficient audit and investigation management process that provides the best possible outcome.
A typical tax audit process entails review of taxpayer's records to ascertain compliance with relevant tax laws. It is usually for not more than 6 years from the date of submission of the relevant returns or receipt of the audit notice. While a tax investigation is an inquiry into the tax activities of a taxpayer by the tax authority to recover undercharged taxes from previous years, triggered on the suspicion of fraud or wilful default of the taxpayer with regards to non-compliance with tax obligations.
There is no time bar for investigations as such investigations can go as far back as the date of incorporation of a company. A desk audit usually involves the tax authority conducting a review of the self-assessment returns filed by a taxpayer to ascertain its completeness and correctness without being physically present at the taxpayer's business premises. Under desk audits, the tax authorities typically request for clarifications and documents from the taxpayers with regards to information contained in the taxpayer's self-assessment returns.
On the other a field audit is a much more elaborate process which involves a physical visit to the taxpayer's premises. In the event audit has been conducted for previous years, the audit shall be limited to previous financial years. For instance, an audit request in , may only be for or for to A Relevant Tax Authority RTA typically does not conduct field audits of the same period twice, however, there are isolated instances where this has happened, usually owing to administrative directives by the RTA.
Also, where a fraud is suspected, an investigation may be conducted notwithstanding the fact that an audit has been conducted on a previous year. The RTA typically notifies taxpayers of its intention to conduct a field audit exercise at least 2 weeks before the beginning of the audit exercise by sending an official memo specifying the period being audited, audit commencement date, and audit checklist.
Audit timelines may be extended at the request of the taxpayer, and in such case, another official memo may be sent to the taxpayer by the RTA communicating acceptance of the new proposed timeline. The selection criteria for a tax audit or investigation are usually at the discretion of the tax authority. Outlined below are selection criteria employed by the tax authority in the past to determine the taxpayer's records to be reviewed:.
Taxpayers are advised to review their transactions to comply with the reporting framework and to understand the tax implication of such frameworks under the tax laws so as to determine the tax deductibility or otherwise of such reporting classification which affects the income or profits declared.
The following represent primary audit or investigation triggers and risk exposures to taxpayers:. Taxpayers are advised to not only maintain proper and adequate records but to also ensure sufficient third-party supporting documents are available as these are vital to addressing any issue raised by the tax authority either during desk audits, field audits, and also the audit reconciliation stage as it helps ensure timely closure of tax audits and investigations.
The appointment of a tax managers to provide professional support and representation also helps ensure an easier audit process. Tax audit or investigation is one that requires adequate planning and preparation. The best approach would be for taxpayers to understand the tax implication of transactions at the point of undertaking them while ensuring adequate compliance arising from such transactions. Tax audit in Nigeria sometimes last more than a year, mostly resulting from the arbitrary approach employed by persons employed by Tax Audit Monitoring Agents employed by tax authorities to conduct the audit process and this consequently results in time wastage and additional cost to taxpayers.
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