It’s every taxpayer’s nightmare—receiving a tax audit notice from the IRS. If you’re among the less than 1% of filers who receive a tax audit letter each year, don’t panic. An audit notice doesn’t mean you’re being accused of a crime or that you owe additional tax. There are many reasons that the IRS may need to audit your return, including an incomplete or unsigned return, unreported income, a change in dependent status, and the validity of itemized credits or deductions claimed on your return.
So what should you do if you receive a tax audit notice from the IRS?
Not Every IRS Letter Signals a Tax Audit
If you receive a letter from the IRS, it may not necessarily be a tax audit notice. Often, the IRS will contact a taxpayer because of questions regarding your return. An authentic IRS letter will arrive by certified mail—meaning you must sign for the letter upon receipt or pick it up at your local post office. Authentic IRS correspondence will also include your taxpayer ID number, form number, employee ID number, and contact information. If your letter is regarding an IRS audit, it may take the form of an IRS correspondence letter, a notice of audit meeting with an IRS official (including time and date of the meeting), or what’s called Form CP2000 (a request for payment of outstanding taxes).
A Caution on Scammers
If you are the subject of a Federal audit, the IRS will notify you by mail. They will NOT attempt to contact you by telephone or email. Any calls or emails regarding a federal audit claiming to originate from the IRS should be regarded with extreme caution. Remember, the IRS has your data—they will not ask you to provide any sensitive personal information regarding your income, social security number, or tax return over the phone. Phishing scams, however, often use calls or emails claiming IRS origin to help cybercriminals obtain sensitive personal information from unwitting victims. Don’t become a scammer casualty—if you need to contact the IRS regarding your return, do so directly or through your tax preparer.
Determine the Purpose of the IRS Audit Request
Because there are several types of IRS audits, each with its own set of requirements, it’s important first to determine the nature of the audit.
Here are a few basic types of IRS audits:
• Correspondence Audit — The IRS is seeking additional information about your return. They may require support documentation such as receipts or cancelled checks to verify deductions or exemptions claimed on your return.
• Office Audit — The IRS requests that you bring specific documentation to an in-person meeting with an IRS representative.
• Field Audit — An IRS representative visits your place of business to conduct an audit.
• Taxpayer Compliance Measurement Program Audit — The IRS maintains a computerized scoring program measuring taxpayer compliance. An audit for this purpose is among the most thorough and may require personal documentation (birth and marriage records) as well as financial and earnings information.
Responding to an IRS Audit Request
If you receive written notice from the IRS regarding an audit of your return, you have 30 days in which to respond without penalty. It’s important that you respond to any IRS requests within this window to avoid additional fines or penalties.
The IRS is usually specific about the information and support materials they need to properly evaluate your return. If you receive an audit letter, gather any documentation that the letter asks you to provide—these may include receipts, cancelled checks, travel vouchers, etc. The IRS generally has a 3-year window in which to audit your return, so it’s advised to keep all tax or income related documentation for at least that long.
If you have trouble documenting an itemized deduction or exemption, you may try to contact the party to whom you made tax-deductible contributions (such as a charity)—they may be able to verify your claim without your need to provide documentation.
If you plan to be crafting an audit response letter on your own, remember that the IRS has strict protocols regarding the form your correspondence must take. For example, your letter must include: your full name, contact information, tax ID number, employee ID number, business ID (if applicable), and the name of the IRS official handling your audit.
All this can seem daunting. That’s why working with an experienced tax attorney is so important. A seasoned tax consultant can help to ensure that:
• You understand the nature of the audit
• You respond promptly to all IRS requests
• You provide all documentation legally required to defend yourself
Also, if you disagree with an IRS decision or wish to question the results of an IRS audit, you’ll need an experienced tax attorney in your corner. And if you end up owing more in taxes, a consultant can help you set up a monthly installment payment plan with the IRS, so your back tax payments fit easily within your budget.
At Moskowitz LLP, our tax attorneys and consultants are experienced in helping clients navigate the often-confusing landscape of an IRS audit. Don’t leave the status of your audit to chance—contact us at Moskowitz LLP today!
Our blog has a number of articles on Tax Audits that you may find useful, including these: