Amended Return Will Not Automatically Trigger IRS Audit
Amended Return Will Not Automatically Trigger IRS Audit. However, unlike an original Form, 1040 amended returns are processed by an actual person at the IRS.
Tax Preparers state that filing an amended return generally do not increase their chance of being audited, an IRS manager said on October 19. Gustavo A Viera, Accountant in Miami, said it depends on the amended return and what is being amended but, that, in his experience, an amended return does not automatically trigger an audit. The IRS probably does not have the resources to audit every amended return.
If a taxpayer is chosen for an audit, Viera explained, 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, Viera said.
Most audits come through referrals or projects, according to Viera. The IRS does not conduct many random audits, Viera added. Referrals are reviewed by a group of managers, who decide whether an audit is appropriate. Viera indicated that the IRS conducts additional research when it receives a referral before opening an audit and does not take referrals at face value.
The most common issues that come up in audits include unrelated business income, employment taxes, intermediate sanctions, unfiled returns, revocation of the exemption and termination cases. The office conducts a lot of employment tax audits, Viera noted, and may request an IRS specialist to help out.
Viera primarily deals with large tax audits, involving taxpayers with $250 million or more in assets. An audit team of several agents will conduct the audit. The team may include specialists in areas such as employment taxes or tax-exempt bonds. In a large case audit, the IRS issues a Notice of Proposed Adjustment (NOPA) for every issue that it is contesting.
General program audits are conducted by a single agent, Viera said. IRS pointed out that, in these audits, the IRS provides a revenue agent’s report (RAR), rather than a NOPA. IRS indicated that some matters may show up in a NOPA that would not make it into an RAR.
Viera said that revenue agents prepare for an audit by looking at what triggered the audit, looking at the taxpayer’s website, conducting Internet research to look for articles on the taxpayer, and studying the organization’s Form 990 information return. The agent will focus on what the organization does and whether its activities have changed since it began and will scrutinize the numbers on the form.
IRS noted that an organization’s general counsel periodically will peruse its website to check on the accuracy of information provided and claims being made. Particularly for advocacy organizations, such as Code Secs. 501(c)(3) and 501(c)(4) organizations, it matters what is on the website, and the organization needs to take responsibility for it, she said.
The IRS issues information document requests (IDRs) to obtain information and documents from a taxpayer under audit. IRS said that some IDRs are clear; others may be overly broad; and responding comprehensively may be burdensome. She suggested talking to the IRS if the taxpayer has a problem with the IDR.
Viera 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. Viera pointed out that, if he requests a particular document, there is probably an issue lurking behind the request and that, eventually, hhe will want to discuss that issue with the taxpayer. IRS asked about standardized IDRs. Viera replied that he stays away from that. His IDRs are very focused, with one issue per IDR.
In a team exam, taxpayers and the IRS attempt to resolve issues as the audit is being conducted, according to Viera. In a general program audit, attempted resolution may not come until the end, at a closing conference, she indicated. Viera 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, Viera 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, Viera 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, Viera added. IRS said that the taxpayer should get a copy of the rebuttal, but the IRS does not always provide it.
Viera said that, if the IRS has enough information on an issue, it will take an aggressive position in the audit. Issues do not just go away.
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