Most Common IRS Tax Audit Compliance Programs

The two major compliance programs that involve reporting compliance issues are programs that look at the items that are reported or should have been reported on the tax return. They are Correspondence Examination, also referred to as “Corr Exam” throughout this presentation, and Automated Underreporter, or AUR. These programs share some similarities, but there are also some differences. While most returns are accepted as filed, some are selected for examination, and the IRS will cover those briefly today.

 

 

What is a Corr Exam?

Corr Exam asks for verifications of credits and deductions claimed on a tax return to determine if they are being reported correctly. The major areas covered by Corr Exam are Earned Income Tax Credit, or EITC, nonfilers and Schedule A deductions. Schedule A deductions include items such as charitable contributions and employee business expenses, or EBE. Correspondence Examinations are conducted on Wage and Investment and Small Business/Self-Employed taxpayers out of 10 campus operations located around the country.

 

How are IRS Audits Selected?

Cases can be selected using various methods, including computerized screening and comparison of information received from third parties, such as Forms W-2 and 1099. Although the cases initiated in each campus are site-specific, they can be viewed universally, allowing any examiner to assist taxpayers during telephone calls. The IRS will attempt to stagger how they start cases and the type of issues to be examined in order to balance compliance risk, level incoming mail and telephone traffic and minimize burden on practitioners and taxpayers.

 

Correspondence Corr Exams

Corr Examinations fall under two major categories: pre-refund and post-refund. For examinations where collectability and timing are a factor – for example, returns claiming the EITC – the IRS initiates the examination before releasing the current-year refund. The IRS generally immediately refund any money not related to the examination, and the IRS treats these as a priority to minimize impact to the taxpayer. Post-refund examinations address other issues and are initiated after the IRS analyzes filing trends and return entries.

 

Automated Underreporter, or AUR Exams

All casework in the AUR program is conducted post-refund. The AUR program initiates inquiries about discrepancies identified between information reported on tax returns and information reported to us from third parties. This includes employers, financial institutions, and banks, as examples. The forms the IRS looks at could include the W-2 and a variety of Forms 1099. Issues the IRS match vary and could include interest, dividends, rent and medical payments. AUR inquiries are conducted on Wage and Investment and Small Business/Self-Employed taxpayers out of seven campus operations located around the country. And as with Corr Exam, although the cases initiated in each campus are site-specific, the AUR system allows for universal access, which allows the AUR cases to be viewed and worked at any AUR campus. In addition, telephone assisters can view the two primary AUR notices. They are the CP2501 and CP2000. And as mentioned earlier, if practitioners have urgent issues, they can also call the Practitioner Priority Services line.

 

Information About IRS Exam Process

While there are some fundamental differences between these two campus programs, the realizes they seem very similar from the taxpayer’s perspective. Each program starts with a notice asking about a tax return. Some of these letters propose a liability or a balance due. If the taxpayer does not respond, a certified letter, the Statutory Notice of Deficiency, or 90-day letter, will be sent.

 

Extending Response Time for IRS Exam

While we cannot extend the period of time to file a petition with the Tax Court, it is important to note that in both programs, we encourage you to work with us prior to and during the 90-day statutory period. If at any time prior to the Statutory Notice of Deficiency being issued you need an extension of time to respond, please call and let us know. We typically grant an extension of time in both programs. If there is no response received to the statutory notice, the IRS will assess the proposed liability by default. Collection activity will begin if there is a balance due.