Tax Audits FAQ

You may be reading this page because you just received a notice from the IRS about an audit of your federal taxes. Or the notice may have come from the revenue department in Washington or Oregon regarding your state taxes.

Without a doubt, you need to take this seriously. At Marsh, Higgins, Beaty & Hatch, P.C., in Vancouver, our attorneys can guide you in making an effective response. Give us call today to discuss your particular situation.

Q: What types of issues arise in audits?

A: The U.S. tax code is very complex, and so are state codes that are often based upon the federal model. So there are many potential tax controversies that can arise. In many cases, however, the issue comes down to whether a taxpayer underreported income or overstated tax deductions or credits. If the amount of the underreporting is substantial, revenue agencies may try to impose tax penalties.

Q: How does the IRS decide which tax returns to audit?

A: Though some returns are selected at random, there are other factors that usually come into play in determining which returns get audited. Certain types of deductions, for example, are widely known for raising red flags for potential audits. IRS computers also seek to match income from third parties, such as employers and banks, with income actually reported by taxpayers.

Q: Is there more than one type of federal tax audit process?

A: Yes. A federal tax audit can be face-to-face, either at a business location or an IRS office. But the audit can also be done by mail. That type of audit is known as a correspondence audit or "corr-exam." In a correspondence exam, taxpayers get a letter asking for additional information. In appropriate cases, the taxpayer can respond by letter with that information.

Q: How far back can the IRS go in auditing someone's taxes?

A: Generally three years. But if a substantial error is detected, this can be extended to six. You may be asked to agree to extend the statute of limitations so that you and the IRS can gather necessary information. But it may not be in your interest to agree to this. A tax lawyer at our firm can advise you on how to proceed.