The IRS has the right to examine any assertions made on your tax returns and demand an audit of your finances at any time. When taxpayers receive an IRS audit letter, most individuals panic. One thing to keep in mind is that audits do not always imply that you have committed a crime or that you owe additional taxes. There’s a possibility that the IRS computer just picked you randomly for an audit.
If you receive an IRS audit letter, you must remain vigilant and take action as soon as possible. The first step is to speak with a tax expert about reviewing the IRS audit letter, after explaining your situation to the tax expert. His or her expertise can help you to determine the best course of action. In addition, a tax expert can help you to develop a strategy as to how to best present your case before an IRS auditor. Let’s take a look at the format of an IRS audit letter and what you should do if you receive one.
What Is An IRS Audit Letter?
An IRS audit letter is a legally binding document issued by the IRS. This letter serves as notice that the IRS will conduct an audit of your tax return for a specific tax year. Because the IRS can audit taxes for the previous years, a specific tax year will be mentioned in the IRS audit letter.
The necessary information which the IRS audit letter will include is Contact Information, Taxpayer ID Number, IRS Employee ID Number, Audit Form Number, and the IRS agent’s telephone number. Additionally, the IRS letter will provide the following information.
- What documents do you need to provide to the IRS during the audit and why they are important to the IRS?
- You may bring someone with you to the audit (such as your spouse if you filed joint tax returns or a tax professional to represent you before the IRS auditor).
- What to anticipate during your conference with the IRS to discuss your audit?
- What fines could be charged, if you don’t respond to the IRS Audit Letter?
10 Things To Do After Receiving An IRS Audit Letter
Once you have received an audit letter from the IRS, the first thing you need to do is to not panic. Go through the IRS audit letter calmly and respond accordingly. Below is a list of 10 tips recommended by experts to follow upon receiving an IRS audit letter.
1. Do Not Ignore The IRS Audit Letter
Go through the IRS Audit Letter thoroughly as soon as you can. It will have a specific set of instructions that you need to follow to respond further.
2. Do Not Panic
Not all IRS audit letters are about federal tax returns. Therefore, read yours carefully to understand what it says.
3. Reply As Per Instructions
It is quite possible that you do not need to respond to the IRS letter. In the case when a reply is necessary, then reply as per the instructions. If you owe some payment, and you agree with the requested payment amount, then you have to reply with a payment rather than writing back.
4. Take Timely Action
The letter you receive will have a timeline after which you might have to pay a penalty or face additional IRS action. Therefore, do not delay your response. Timely reply accordingly.
5. Review The Information
Before replying to the letter, make sure you review all the information. If any changes are being made in the tax return records, then record them and keep an additional copy too.
6. Respond To A Disputed Notice
A taxpayer does not have to agree with the IRS tax notice. If you find any disputed information, you should respond accordingly. Clearly mention the disputed clauses and why you disagree.
7. Call If Needed
If there is a need to call the IRS, call the IRS via the contact number given in the notice.
8. Do Not Fall For A Scam
If there is a need to call the IRS, call the IRS via the contact number given in the notice.
9. Contact A Professional
If you are unable to understand the jargon of the IRS letter, then it is better to contact a tax professional for assistance.
10. Keep A Copy
If you reply to the IRS, keep a copy of that reply for your records.
Audit Response Letter
If you reply to the IRS, keep a copy of that reply for your records.
Upon receiving the IRS audit envelope, you need to write a response letter. The IRS gives you 30 days to do so. You need to respond within 30 days, otherwise, the IRS could take serious action against you.
When writing a response letter, you need to clearly add the following information:
Write legibly and double-check your Tax ID number, full name, contact information, the IRS employee ID number, your business ID as well as the name of the IRS agent who is appointed by the IRS to conduct your audit.
Address each problem raised by the IRS in your audit letter.
Attach a copy of any particular document requested by the IRS and copies of all relevant papers in your response letter.
Request a meeting date and time with the IRS agent assigned to conduct your audit to resolve the problems that have been reported.
Contact Tax Professionals
Before you write an audit response letter, it’s beneficial to consult with a tax professional. These professionals will assist you in the following ways:
- Help you to write an error-free audit response letter. If you write a letter on your own then it will be prone to errors which may result in a misunderstanding that could lead to a fine from the IRS.
- Assist you in gathering the right documents that the IRS has demanded.
- Analyze your financial situation and prepare you for the future audit with reasoning and evidence that supports your position.
- Represent you in front of the IRS during an audit and negotiate with the IRS auditor on your behalf.
What Are Your Rights As A Taxpayer When You Receive An Audit Letter?
If you receive an audit letter, it doesn’t mean you have committed an offense. That’s why you must not lose your confidence. You still have the following rights as a taxpayer:
- Right to expect the IRS to treat you professionally and courteously.
- Right of privacy and confidentiality of tax matters.
- Right to know the reason for your tax audit.
- Right to have a tax professional represent you in front of IRS officials on your behalf during an audit.
What Happens If You Fail To Respond To An IRS Audit Letter?
There is a danger that if you decide to respond to the IRS on your own you might make costly mistakes, or you might forget to respond to the IRS Audit Letter within 30 days from the date on the letter. The IRS could then send you a tax bill that includes interest and penalties assessed from the day of the filing of your tax return, and if you do not timely pay the bill the IRS could subsequently issue a levy against your bank account or take other collection actions against you.
Therefore, it’s essential to contact an experienced tax attorney or professional tax advisor as soon as possible upon receiving your audit letter.
Related article: IRS Notice CP504 Vs. IRS Notice LT11
What To Do If the IRS Determines You Owe More Money?
If at the conclusion of the audit the IRS determines that you owe more money then you can do the following things:
- You can file an appeal asking the IRS Appeals division to review your case.
- If you don’t have the money to pay the additionally assessed tax, penalties, and interest then you may ask for an extension of time to pay or request an IRS installment agreement to enable you to make monthly payments toward the additionally assessed balance.
- You can apply for currently non-collectible (CNC) status if you can prove that you are unable to pay anything toward the additionally assessed tax, penalties, and interest due to your bad financial situation.
- You can use your debit/credit card to pay off your taxes.
- You can take out a loan from a third party and pay off your taxes in full.
How Long Does An Audit Last?
An audit can last 3 months or more depending on the complexity of your filed tax returns. If there is no discrepancy then you might end an audit in a single meeting.
What Happens After An Audit?
You will receive an audit report from the IRS agent who conducted the audit. If the audit report reveals you have been charged with penalties or owe the IRS any money, then it’s time to hire a tax attorney on your behalf. These professionals can negotiate with the IRS to set up an IRS repayment schedule or suggest a compromise proposal on your behalf.
Furthermore, if you are dissatisfied with the audit report, you have the option of filing an appeal within 30 days of the audit. The Tax Relief Company can help you with this process as well. They stick with you throughout the IRS procedure and assist you in whatever way possible to avoid paying hefty taxes.