What’s the Difference Between an Audit, Correspondence Audit, and an Adjustment Letter?

Nothing will make your heart skip a beat like walking out to the mailbox to find a letter from the IRS. The tax audit can strike fear in even the most honest taxpayers, but if you receive something from the IRS after filing your taxes you’ll want to understand just what they are seeking before getting too worked up about it.

Audit

Audit

In fact, a true audit happens to very few people every year, and it’s usually because of a glaring problem or unusual situation found on a tax return. More common are correspondence audits and adjustment letters, which are not like the audits you hear horror stories about.

The Examination Audit

A traditional tax audit is usually picked up by computer programs that are set up to detect irregularities on tax returns that might signal there is a problem. While it may seem like a simple error or wrong number may instantly create a red flag and cause you to get audited, that’s not exactly how it works. In fact, the IRS typically audits less than one percent of all tax returns filed each year.  Also, keep in mind that not all audits mean the IRS is out to get you and stick you with a greater tax bill. They are looking for problems and inconsistencies and it could actually result in getting a larger refund.

If you do receive a letter stating that the IRS would like to conduct an examination audit, there will be instructions as to how to provide the information they need. Some of these audits can be conducted through the mail, but in other instances it may require meeting an auditor in person either at your home, place of business, or an IRS office. At the end of the audit process there will be a determination as to what needs to be done to satisfy the IRS. There is an appeals process if you don’t agree with the outcome.

The Correspondence Audit

The correspondence audit is far more common than the examination audit that people think about when they hear the word audit. Again, these are usually triggered by software that compares returns against common trends and selects those that don’t match for a correspondence audit. The IRS will mail the taxpayer either a Letter 566 or a CP 2000 notice. The 566 letter advises taxpayers that their return has been selected for examination and will list documents needed to verify the return. The CP 2000 notice will contain adjustments based on third-party documents associated with the return. In these types of audits it may be as simple as providing copies of a 1099 form to verify the numbers match what was reported to the IRS.

The Adjustment Letter

Finally, the letter you receive from the IRS may simply be an adjustment letter or adjustment notice. These are simply letters sent out to give notice to a taxpayer about additional taxes owed or a change in the refund amount. The reason there may be additional taxes owed is typically just because of a miscalculation or a wrong number entered on your tax return.

For a list of the different IRS notices sent out and what action needs to be taken for each, the IRS has a comprehensive list.

In the unlikely event that you receive an audit notice from the IRS, don’t worry.  If you prepare your taxes with TurboTax this year, TurboTax Audit Support Guarantee provides free one-on-one guidance from an experienced tax professional to help you know what to expect and how to prepare if you receive an audit letter.

Comments (7) Leave your comment

  1. I recieved a letter Examination by IRS for 2011 tax . I used turbo delux. I do not agree with their claim. They want me to pay tax on rail road retirement money that was already taxed.

  2. I recieve alimony each month. I entered the wrong amount on my taxes that I received from my ex husband. My ex husband received a letter from the IRS requesting documentation showing how much he paid in alimony in the tax year 2011. Will I just receive a letter from IRS as well and they will just adjust by return as needed and then I will pay the IRS for the amount owed?

  3. How long will it take after you file to receive an audit letter? Des it affect your return or is it done later in the year?

  4. I paid for this filing about 6 months ago. I’m sure that the site will bill me again when I file.

    • Hi David,
      Although TurboTax has the Audit Risk Meter that provides a visual indication of possible audit risk based on the analysis of common situations, the IRS may identify audit triggers outside of common situations and the IRS selects a small percentage of returns at random so there is no guarantee even though the percentage of returns chosen for audit is very small. TurboTax does have free audit guarantee where you can receive guidance on what to do in the event of an audit from tax professionals. TurboTax also has audit defense which is a paid service where you receive full representation from a tax professional in the event of an audit.
      Thank you,
      Lisa Greene-Lewis

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