Differences between Audit and Correspondence Audit
Contents
Comparison Article
An audit, in the context of the Internal Revenue Service (IRS), is a formal examination of an individual or organization's accounts and financial information to ensure compliance with tax laws. The IRS utilizes several methods to conduct these reviews, ranging from automated mail-based inquiries to comprehensive in-person inspections. A correspondence audit is a specific subset of the audit process that is conducted entirely through postal communication, whereas traditional audits—often categorized as office or field audits—involve face-to-face interactions between taxpayers and government agents.
Audit and correspondence audit
The IRS selects tax returns for examination through various methods, including random sampling and "scoring" systems that identify outliers in reported income or deductions. According to the 2023 IRS Data Book, correspondence audits represent the majority of all tax examinations, accounting for approximately 85% of audits for individual taxpayers.[1]
Comparison table
| Category | Correspondence audit | Field or office audit |
|---|---|---|
| Method of contact | Conducted solely via U.S. mail | Conducted in person (face-to-face) |
| Scope of inquiry | Limited to specific items or lines on a tax return | Broad examination of the entire return |
| Assigned personnel | Tax examiners at a centralized service center | Revenue agents or tax compliance officers |
| Location | Taxpayer's home or office (remote) | IRS office, taxpayer's home, or place of business |
| Common issues | Simple errors, missing forms, or credit eligibility | Complex business expenses, unreported income, or payroll taxes |
| Average duration | Generally resolved within weeks of document submission | May last several months or longer |
| Initial notification | Letter 566 or similar notice sent by mail | Appointment letter or telephone call to schedule a meeting |
Characteristics of correspondence audits
A correspondence audit is typically initiated when the IRS requires additional documentation to verify a specific entry on a tax return. Common triggers include claims for the Earned Income Tax Credit (EITC), charitable contribution deductions, or education-related credits. The taxpayer receives a letter identifying the items under review and a list of requested documents, such as receipts, canceled checks, or bank statements.[2]
The primary advantage of this format is administrative efficiency. Because the process does not require a physical meeting, it consumes fewer resources for both the government and the taxpayer. If the taxpayer provides sufficient proof, the IRS sends a closing letter, and the case is resolved. If the documentation is insufficient, the IRS may propose a tax adjustment, which the taxpayer can either accept or appeal.
Characteristics of field and office audits
Field and office audits involve higher levels of scrutiny. An office audit takes place at a local IRS branch and usually focuses on small business owners or individuals with complex itemized deductions. A field audit is the most intensive type of examination, where a Revenue Agent visits the taxpayer's place of business or the office of their accountant.
These examinations are reserved for returns with significant complexities that cannot be resolved through the mail. Revenue agents often review internal accounting ledgers, physical inventory, and employee records. The focus is not limited to a single line item; agents may expand the scope of the audit to previous tax years if they discover systemic errors or evidence of tax evasion.[3]
Taxpayer rights
Regardless of the audit type, taxpayers are protected by the Taxpayer Bill of Rights. These include the right to professional representation by a Certified Public Accountant (CPA) or attorney, the right to appeal IRS decisions in an independent forum, and the right to privacy and confidentiality. In both correspondence and in-person audits, the burden of proof rests on the taxpayer to maintain and provide records that substantiate all reported figures.
