If you’ve received an audit letter from the IRS, you’re not alone. More than 770,000 tax returns were audited in the 2019 fiscal year, according to the IRS,
With more than 140 million personal income tax returns filed, it's safe to say that most people will not be audited in a given year. But for those who do receive a notice of audit, there are important considerations to keep in mind.
First, don't panic. Then, follow these helpful tips to manage the stressful situation of receiving an IRS audit letter.
Audit Tip #1 - Know the System
Every audit begins the same way: a letter in the mail. The IRS will only ever send a letter in the post to notify you of an audit. After you’ve made initial contact they may contact you by phone or email, but a letter in the mail is the only official means of initial correspondence regarding any type of audit. This letter will generally provide you with an explanation of why the audit is happening, and for which tax year it applies. The notice should also give details for how to complete the audit, or appeal its findings.
Audit Tip #2 - Don't Assume You're in Trouble
There are several types of audit, and most of them are not as intense as an IRS agent showing up at your door for a field audit. Tens of thousands of people are randomly selected for an audit every year. Most audits are nothing more than an exercise in correcting an error or errors on your tax return.
Audit Tip #3 - Don’t Panic!
Most audits can be dealt with without much ado. You should have 30 days to respond to the notice of audit, which should be enough time for you to review your return against the audit and/or consult with your tax professional.
Why Did I Receive an Audit in the Mail from the IRS?
Audits generally happen because an error has been identified, the IRS needs to clarify or confirm information, or because inconsistent or suspect tax positions have been claimed by the taxpayer.
Most audits are the result of math errors or through the automated reporting system that matches tax information from employers, banks, brokerage firms, etc. against what’s reported by taxpayers. When there is a discrepancy with tax payer income and deductions submitted on documentation from these third parties and the income tax amounts reported by taxpayers on individual income tax returns, it can trigger an audit.
Other reasons for an IRS audit landing in your mailbox can be for an explanation of your tax position for income from employee stock options, itemized deductions, passive and non-passive income from rental properties, short- and long-term capital gains
What Should I Do If I Receive an Audit Notice from the IRS?
Again, the first thing to do is not panic. Second, don’t ignore your notice.
If you receive a letter with a “respond by” date on it, you typically have 30 days to respond. Remember, this is not 30 days from the day you opened the letter, but 30 days from the date printed on the letter. Ignoring the letter or pretending you didn’t receive it is not going to help you at all.
If you don’t respond, it could mean additional interest added to an already owed payment, penalty charges, and extra fees. You may also lose your right to appeal the claim if you disagree. If the IRS claims you owe back taxes and you ignore the letter or don’t respond before the deadline, that could lead to liens and levies on your property.
You also have an opportunity after the first letter to appeal any claims they’ve made, work out a payment plan or tax settlement for back taxes, and have time to contact and work with a tax professional to dispute the letter.
The longer you wait, the worse off your standing will be, and you may lose your chance altogether to resolve any tax issues. At this stage, it never hurts to consult a tax professional about any exposure you have or just to gain a better understanding of what the IRS is after.
How To Respond to an IRS Audit
You can respond to the audit letter by mail, phone, or through a professional tax representative. If you’re unsure of what to do, or if you think you should dispute the claims made by the IRS, you should strongly consider working with Tax Relief USA. Our team of enrolled agents, tax attorneys, and CPAs will get the details on your case and advocate on your behalf to the IRS.
We strive to get you the best possible outcome when it comes to your tax audit. Our team won’t take a case unless we’re confident we’ll be able to help you come out ahead and ready to get on with your life or back to your business.