Which of the following situations would most likely be resolved in a correspondence audit? A. verification...

Which of the following situations would most likely be resolved in a correspondence audit?

A. verification of a taxpayer's qualifications for the EITC

B. The determination whether 23 of a construction company's workers are employees or independent contractors

C. Whether a particular transaction resulted in capital gain or ordinary income

D. Review of all tax records of an S Corporation (sales of $20 million and 40 employees) for the past three years

Solutions

Expert Solution

Correspondence audit is basically an audit undertaken by IRS through a mail, asking for a clarification or additional information on the issues found from the tax returns filed.

A. Verification of taxpayer's qualification for EITC.

EITC means earned income tax credit given by IRS to there workers. IRS have set up various helping hands for workers to get the free tax help from VITA. Since EITC involves submission of various paper works. It might not resolve through the correspondance audit

B. The determination whether 23 of a construction company's workers are employees or independent contractors

This might require going through the terms of agreement of the company with the employees. Thus it is possible to resolve this through a correspondence audit

C.Whether a particular transaction resulted in capital gain or ordinary income

YES, this can be resolved through the correspondence audit by communicating with the tax payer and asking for additional information /evidences

D.Review of all tax records of an S Corporation (sales of $20 million and 40 employees) for the past three years

No, This activity requires going through too many records, which might not practically be possible via Correspondence audit.

ekkarill92 answered 1 year ago

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