Received an IRS Audit Letter? Expert Tips to handle it effectively
Even individuals with a strong record of financial responsibility may experience apprehension and anxiety when undergoing an audit conducted by the Internal Revenue Service (IRS). However, being one of the less than one percent of taxpayers who receive an IRS audit letter should not send you into a panic.
In most cases, these letters are triggered by common factors and can often be resolved smoothly. In this guide, we will explore the essential steps to take when you receive a letter, how to identify it accurately, and how to respond professionally to secure the best possible outcome.
Understanding IRS audit letters
The first critical step when receiving an IRS audit letter is to understand what it entails. Not every communication from the IRS signifies a full-blown audit. Many times, the IRS sends letters requesting additional information or seeking clarification regarding specific details on your tax return.
An authentic IRS audit letter will be sent through certified mail, and this will be indicated on the envelope. Inside the envelope, you will find comprehensive information, including your name, taxpayer ID, form number, employee ID number, and IRS contact details. The opening lines of the letter will generally state that your state or federal income tax return for the relevant year has been selected for examination.
The letter, originating from either the IRS office or the Department of Treasury, will also specify the primary focus of the audit and detail the necessary documentation you must provide to address the issues in question. Typically, in mail audits, the IRS requests receipts or other documentation to substantiate items on your return and seeks an explanation of the circumstances that led to your filing.
Professionally respond to an IRS notice
Act Promptly: Time is of the essence when responding to an IRS audit notice. The IRS typically expects a response, either via phone or a written audit response letter, within 30 days. Delaying your response may result in penalties.
Gather documentation: Once you’ve read the IRS audit letter and identified the audit triggers, start gathering all relevant documentation that supports the deductions or claims in question.
This may include receipts, appraisals, canceled checks, or mileage logs. It’s a good practice to retain tax documents for at least three years, but in cases involving fraud or failure to file, the IRS may extend its reach further into your financial history.
Seek professional assistance: Writing an audit response letter requires precision and compliance with IRS specifications. While you may be tempted to draft the letter yourself, there are risks involved. Any mistakes or omissions could significantly delay the resolution of your audit.
Engaging an experienced tax professional is a wise choice, as they can craft a response letter tailored to your unique circumstances and reasons for the tax audit. This can expedite the audit resolution process.
Cooperate and communicate: After you or your tax professional submit the documentation and a comprehensive explanation of your stance in response to the audit findings, the IRS agent will review your submission and provide a response. Maintain open communication and cooperation throughout this process.
Consequences of non-response to IRS audit letters
Failure to respond adequately to an IRS audit letter can have serious consequences. If you don’t respond within the stipulated 30-day timeframe, respond inaccurately, or fail to engage a tax professional when necessary, the IRS may disallow the items in question on your tax return. This can lead to additional tax assessments, penalties, and the accrual of interest from the date of filing of your income tax.
Mail tax audit timeline
Mail audits can vary in duration, typically taking between three months to over a year to reach resolution. However, responding accurately and promptly with the assistance of a tax preparer increases your chances of expediting the audit process, often resulting in a shorter timeframe.
Handling additional tax assessments
If the IRS determines that you owe more taxes along with penalties, you have options. You can agree to pay the additional taxes, or you can request a review by the IRS Appeals Office. This review involves an independent analysis of your case, considering any new information you provide.
If paying the additional taxes immediately is not feasible, the IRS offers options, including setting up a monthly payment plan or requesting an extension. In cases of financial hardship, the IRS provides alternatives that may allow you to defer payment or settle for a reduced amount.
Take away when receive an IRS audit letter
When confronted with an IRS audit letter, the worst course of action is to ignore it. Procrastination will not make the problem disappear. You have a finite window of opportunity to respond before the audit notice transforms into a tax bill. To navigate this situation effectively and secure the best possible outcome, contact a qualified certified public accountant who can provide you with professional guidance and assistance. Responding professionally, promptly, and cooperatively will help ensure a smoother and more favorable resolution to your IRS audit.
