Preparation for IRS Audits

The new view of the IRS is: “Service + Enforcement = Compliance”.


The IRS has over 100,000 employees who are divided into Operating Divisions which are based upon the type of taxpayers that are handled.

Operating Divisions

Wage & Investment (W & I)

A. Wage & Investment income.

  1. Over 120 Million Taxpayers
  2. Pay Taxes through Withholding.
  3. Self-Prepared Returns.
  4. Receive Refunds.
  5. Accounts for ≈ 94 million returns.


Types of Audits

A. Correspondence

  1. Usually restricted to specific questions which are easily verifiable
  2. Handled by Lower Graded Employees
  3. Correspondence Audits are usually assigned to Tax Examiners

B. Office Audit

  1. Issues on return too complex for correspondence audits
  2. Include both Tax Auditors & Compliance Officers ( May be higher graded than Tax Auditors)
  3. Can handle simple corporate returns

C. Field Examination

  1. Most trained Auditor; called Revenue Agent
  2. Have a college degree with many hours of accounting
  3. Revenue Agents work in the field
  4. Some are CPAs. Those who examine estate & gift tax returns are attorneys

D. Coordinated Industry Specialization

  1. Examiners who specialize in particular industries
  2. Employed by LMSB
  3. Includes Settlement Guidelines, Industry Specialists, Coordinated issue papers

E. Market Segment Specialization Program

  1. IRS considers hours spent conducting audits vs. $$$ assessed

Audit Process

  1. When returns are processed, SSNs are matched with names & dependents are matched
  2. DIF scores are assigned
  3. High DIF scored returns are assigned to examiners for review