Question

Which of the following is a characteristic of the audit process?

1) Taxpayer audits rarely involve "special" agents.
2) Self-employed taxpayers are less likely to be selected for audit than employed taxpayers.
3) Significant tax issues are handled by means of a correspondence audit.
4) The IRS does not reward informants even when the information provided leads to the collection of additional taxes.
5) If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.

Answer 1

Characteristics of the audit process include the potential involvement of special agents, the higher likelihood of self-employed taxpayers being audited, the use of correspondence audits for significant yet straightforward tax issues, rewards for informants via the IRS Whistleblower Award Program, and the option for administrative appeals prior to litigation. The correct option is 2.

Step-by-step explanation:

When considering the characteristics of the audit process, it's important to address the provided statements in context with the Internal Revenue Service (IRS) practices. First, it should be noted that taxpayer audits can indeed involve special agents, particularly when there is a suspicion of tax fraud or more serious tax issues. Contrary to the statement provided, self-employed taxpayers may be more likely to be audited due to them having more opportunities for claiming deductions or having unreported income, compared to employed taxpayers who typically have taxes directly withheld from their paychecks.

Regarding significant tax issues, they may be addressed through a correspondence audit for straightforward issues; however, more complex matters often require in-person audits. The IRS does offer a Whistleblower Award Program, which provides an incentive for informants who provide information that leads to the collection of additional taxes. Lastly, if a taxpayer disagrees with an IRS auditor's findings, they have the opportunity to request an administrative appeal with the IRS Office of Appeals before needing to resort to litigation in the courts.