When the IRS assigns a field auditor to your case, it is not a routine paperwork review. A field audit is the IRS’s most intensive form of examination, conducted in person by a revenue agent at your home, place of business, or your tax professional’s office. It is designed to test the accuracy and honesty of your books and records. It is often reserved for complex, higher-dollar, and higher-risk returns, especially those of self-employed taxpayers and closely held businesses. For clients who have taken aggressive positions, operated cash-intensive businesses, used multiple entities, or “rounded the edges” on prior reporting, a field audit is often the first visible sign that the IRS is digging deeply enough to uncover issues that could evolve into an eggshell or reverse eggshell audit and, in the worst scenarios, a criminal tax investigation by IRS Criminal Investigation (CI).
At the Tax Law Offices of David W. Klasing, our practice is built around high-stakes civil and criminal tax examinations. Understanding what a field audit is, why your case was assigned to the field, and how the process works is essential to protecting both your net worth and your liberty.
What is an IRS Field Audit and When Does the IRS Use Them?
The IRS recognizes three basic categories of examinations: correspondence audits conducted by mail, office audits conducted at an IRS office, and field audits conducted at your location or that of your representative. A field audit, sometimes called a field examination, is a face-to-face review in which a revenue agent meets with you and inspects your records on-site rather than simply reviewing documents you mail in. Field audits are considered the most comprehensive type of IRS audit. They are typically used when the return is complex, the dollar amounts are significant, or the IRS believes that a deeper look at the business operations or lifestyle is warranted.
The IRS decides whether to conduct an office or field examination in accordance with its examination procedures and Internal Revenue Manual (IRM) guidance. Factors can include the type of taxpayer, the issues involved, the need to inspect books and records at the business location, and whether related entities or other types of tax (for example, employment tax or excise tax) may also need review. In practical terms, being assigned to a field audit usually means the IRS expects to spend more time on your case and is prepared to scrutinize not only individual line items but also underlying systems, internal controls, and the economic reality of your income and expenses.
Field audits are particularly common for:
- Self-employed individuals and small businesses filing Schedule C.
- Partnerships, S corporations, and closely held C corporations with significant gross receipts or complex transactions.
- Cash-intensive businesses such as restaurants, retail, personal services, and certain professional practices.
- Taxpayers with substantial deductions, credits, or year-to-year fluctuations that stand out under IRS scoring systems.
These are also the profiles that frequently appear in civil fraud and criminal tax cases, which is why a field audit must be handled with extreme care when the facts are less than pristine.
How IRS Field Audits Are Initiated and Structured
Before a field audit begins, the revenue agent is required to complete pre-contact research, which can include reviewing your filed returns for multiple years, pulling third-party information returns (Forms W-2, 1099, 1098, and similar reports), and running internal and external database checks. Once that pre-contact work is done, the agent will send a notice that your return has been selected for examination and will propose a time and place for the initial appointment, generally within several weeks of first contact. In many cases, the notice will be a “Notice of Audit and Examination Scheduled” or a Letter 2205 variant, and it will identify which years and issues will be examined.
A typical field audit follows a series of stages:
Initial Contact and Scheduling
The agent contacts you or, preferably, your representative to schedule the audit and may send an initial information document request listing records to have available at the first meeting.
Initial Interview and Tour
At the opening meeting, the revenue agent will usually conduct an interview about your business operations, internal controls, and recordkeeping, and, in business cases, may request a tour of your facilities. The IRM encourages agents to hold this interview early so they can understand how the business actually operates before testing transactions.
Review of Books, Records, and Returns
The agent will examine your general ledger, bank statements, invoices, receipts, payroll records, and other documentation to determine whether reported income is complete and whether claimed deductions have adequate support. In business cases, the agent may also inspect returns for different types of tax to ensure overall compliance.
Expansion or Narrowing of Issues
Field auditors have discretion to expand the scope of the examination if they find indications of additional problems, and they can request returns for other years or related entities under IRM rules. The reverse is also true. If issues are resolved satisfactorily, the agent can narrow the scope of the audit.
Proposed Adjustments and Closing
At the end of the field audit, the agent will present proposed adjustments, usually on Form 4549 (Report of Income Tax Examination Changes), which is often transmitted with a ‘30-day letter,’ such as Letter 950 (used in field examinations) or, in some cases, Letter 915, that offers an opportunity to agree, provide additional information, or request an administrative appeal.
At each step, what you say and what you produce becomes part of the permanent examination file. If the case later becomes a fraud development case or is referred to CI, that same file may be reviewed by special agents and Department of Justice attorneys.
When a Field Audit Becomes an Eggshell or Reverse Eggshell Audit
Not every field audit is a fraud case in disguise. Many are resolved as ordinary civil examinations, often with additional tax due. However, because field audits are assigned to higher risk taxpayers and more complex returns, they frequently overlap with situations where potential badges of fraud already exist, such as:
- Unreported cash receipts or skimmed income.
- Two sets of books or altered records.
- Fabricated or inflated deductions.
- Use of nominees or sham entities to hold assets.
- Undisclosed offshore accounts or digital assets.
An eggshell audit is a situation in which the taxpayer and their advisor know there are serious problems with the returns under examination. Still, the civil agent may not yet be aware of them. A reverse eggshell audit is the mirror image: the government already has information, perhaps from third-party informants, Bank Secrecy Act data, or prior investigations, that the taxpayer does not realize it has. In both situations, a field audit can serve as the basis for the government to develop a record that later supports civil fraud penalties under Internal Revenue Code section 6663 or a criminal tax prosecution.
The Office of Fraud Enforcement (OFE) and the IRM instruct examiners to watch for “first indicators” or badges of fraud and to develop those indicators into “firm indications” where appropriate. When a revenue agent has sufficient evidence to suspect intentional wrongdoing, they are expected to consult a Fraud Enforcement Advisor or a similar specialist. They may refer the case for fraud development and potential criminal referral to CI.
Once CI formally accepts a case, the dynamic changes. Special agents can use grand jury subpoenas, search warrants, and other criminal tools, and CI’s published statistics show conviction rates around 90 percent in cases it sends to the Department of Justice, with billions of dollars in tax and other financial crimes identified each year. Structuring a field audit response as if CI and a federal prosecutor may one day read the file is often the safest approach when there is any hint of fraud exposure.
How to Approach an IRS Field Audit Without Making Things Worse
When a client brings us a field audit notice, our first advice is never to treat an in-person examination as a casual bookkeeping check. Everything about a field audit, from the initial interview to the agent’s questions about lifestyle and internal controls, is designed to test whether the return reflects reality and whether any misstatements were honest mistakes or intentional acts.
Several Guiding Principles Apply in Almost Every Significant Field Audit
First, you should not meet with the revenue agent alone to “explain” the return. Examiners and revenue agents are trained to probe for inconsistencies and recognize indicators of fraud, and they will memorialize their findings in their workpapers. Seemingly innocent explanations can be misconstrued later if the case takes on a criminal tax dimension.
Second, you should not assume your original preparer is the right person to lead you through a field audit. Communications with a non-lawyer preparer are generally not protected by the attorney-client privilege, and the limited “tax practitioner” privilege does not apply in criminal matters. Preparers whose work is under scrutiny may face their own risks and have strong incentives to protect their license and reputation by shifting the blame onto the client. In the worst cases, the preparer becomes a government witness.
Third, all communications and document production should be centralized through experienced tax controversy counsel. When you retain the Tax Law Offices of David W. Klasing, your communications with our dual-licensed Attorneys and CPAs are protected by the attorney-client privilege and attorney work-product doctrine because our CPAs are employees of the firm and function as part of the legal team. That structure allows you to speak candidly about what truly happened in prior years so we can realistically assess your exposure and design a defense strategy that both addresses the civil examination and minimizes criminal tax risk.
Finally, field audits must be managed with a clear closing strategy in mind. In some cases, the best outcome is a negotiated resolution at the examination or Appeals level that significantly reduces proposed adjustments and penalties while also reducing the appearance of fraudulent intent. In others, the IRS’s position is so unreasonable that litigation in the United States Tax Court becomes the right path to protect your rights before any liability is assessed. The key is to decide that strategy early and ensure that each interview, document production, and written response is consistent with that plan.
Contact the Tax Law Offices of David W. Klasing if You Are Facing an IRS Field Audit
If you have received notice that your return has been selected for an IRS field audit, or if a revenue agent has already requested an in-person meeting at your home, business, or your preparer’s office, you are at a critical juncture. Field audits are where high-risk civil examinations often evolve into eggshell or reverse-eggshell audits, fraud investigations, and, in the worst cases, life-altering criminal tax investigations.
At the Tax Law Offices of David W. Klasing, our dual-licensed civil and criminal tax defense Attorneys and CPAs concentrate on precisely these high-stakes federal and California tax controversies. We review your field audit notice and information document requests line by line, analyze your prior returns and financial records, identify red flags and other exposure points, and then design a strategy that protects both your net worth and your liberty. Because our CPAs are employees of the firm and operate as part of your legal team, their forensic accounting, return reconstruction, and interface with the revenue agent all occur within the protection of the attorney-client privilege and work-product doctrine, which you do not receive when you deal directly with a stand-alone preparer.
If you are facing an IRS field audit or suspect that your examination may be elevated to one, contact the Tax Law Offices of David W. Klasing for a confidential, reduced-rate initial consultation. Call us at 800-681-1295 or complete our online contact form HERE to schedule an appointment. The sooner you put experienced, privileged representation between you and the IRS, the more options we will have to control the field audit, minimize civil damage, and guard against the risk of a life- and career-destroying criminal tax investigation or prosecution.
