Do Amended Returns Automatically Trigger Audits (and Other Scary Audit Issues)?
The Halloween season seems an appropriate time to talk about one of most taxpayers' worst nightmares -- undergoing an IRS audit?
One of the most common questions we as tax professionals here is "will filing an amended return get me audited?" In a recent panel discussion, IRS group manager Russell Renwick addressed that question.
According to Renwick, speaking at an American Law Institute-Continuing Legal Education conference, filing an amended return generally does not increase the chance of being audited. Renwick said it depends on what item is being amended but, that, in his experience, an amended return does not automatically trigger an audit.
Adding to this, Virginia Puddister, an IRS revenue agent who was also on the panel, said that the IRS probably does not have the resources to audit every amended return, even if it desired to do so.
What if an amended return is intended, but you get chosen for an audit before getting it filed? Renwick explained that it is better not to file an amended return after the audit starts. Chances are that the audit group will not get the amended return, and the filing will create confusion, he said. It is better to discuss any proposed change with the revenue agent conducting the audit, Puddister commented.
Most audits come through referrals or projects, according to Puddister. Referrals are reviewed by a group of managers, who decide whether an audit is appropriate, she said. The IRS does not conduct many random audits, added Renwick, who indicated that the IRS conducts additional research when it receives a referral before opening an audit and does not take referrals at face value.
While a very large audit may be conducted by a team, general program audits are conducted by a single agent, Renwick said. In such an audit, at its conclusion, the IRS provides what is known as a revenue agent's report (RAR) addressing any issues and conclusions from the audit.
Puddister said that revenue agents may prepare for an audit by looking at what triggered the audit, looking at the taxpayer's website (if any), conducting Internet research to look for articles on the taxpayer, and studying the taxpayer's returns.
The IRS issues information document requests (IDRs) to obtain information and documents from a taxpayer under audit. While some IDRs are clear, others may be overly broad, and responding comprehensively may be burdensome. If the taxpayer has a problem with the IDR, it is usually a good idea for the taxpayer or their representative to discuss this with the IRS.
Puddister said that open communication between the IRS agent and the taxpayer is important; if the taxpayer has a problem, talk to the agent or the group manager. She pointed out that, if she requests a particular document, there is probably an issue lurking behind the request and that, eventually, she will want to discuss that issue with the taxpayer.
If a team exam is being done, taxpayers and the IRS attempt to resolve issues as the audit is being conducted, according to Puddister. In a general program audit, attempted resolution may not come until the end, at a closing conference, she indicated.
Renwick said that an issue should not be a surprise. A taxpayer who is unclear about the issues should ask the agent, and the agent should identify the issues.
The IRS will generally assess penalties if the taxpayer owes additional taxes, Renwick said. The IRS puts the taxpayer on notice, and gives the taxpayer an opportunity to argue good faith and reasonable cause. He added that the IRS tries to be reasonable and noted that, if a taxpayer makes an error and confesses, the IRS may be more lenient on penalties.
Some audits terminate with a closing agreement, but these can be time-consuming, Renwick said. The IRS will try to resolve the audit through the revenue agent's report, rather than a closing agreement. However, fast-track mediation is faster than the normal process and may involve an expedited closing agreement. If the issues are not resolved, the taxpayer can file a protest and ask IRS Appeals to look at the case. The IRS agent will read the protest and may file a rebuttal, according to Puddister. The taxpayer should get a copy of the rebuttal, but the IRS does not always provide it, so one may have to be requested.
Sometimes it's the fear of the unknown that causes the most anxiety. Hopefully, the information above regarding IRS audits will help someone sleep just a bit better!
