Certainly, receiving an IRS Audit Letter and Responding to it is a quite stressful job. However, if you are one of a few people who have received a formal audit letter, then you better take your first step ahead.
When the IRS identifies a red flag, it will quickly notify the sender with an audit letter. So, it is likely that your tax return must have been flagged because of a small mistake you made while filling out the form.
Assuming that you were not cold playing with your personal data while filling out the form, the audit can likely be easy with basic questions in order for verification, but if you were intentionally dishonest in the form, then you will be in big trouble.
Either way, the first thing that should be done after receiving an audit letter is ‘opening it.’ You should check whether it is an authentic letter or a dummy.
In this post, we will see what an IRS audit letter will look like, how to respond to an audit letter, and what will happen if not responded on time.
What Does An IRS Audit Letter Look Like?
An Audit Letter is an overall review of your tax return that is supported by documents. If you ever happen to receive one, then you do not necessarily have to panic, but you should realize it’s high time for you to get organized. Instead of stuffing your valuable documents in a drawer, you should be keeping them safe and assembled.
Now coming to the audit letter’s appearance, it usually looks different from other forms. You can spot your name, form number, taxpayer ID, Employee Identification Number, and other contact information.
It will further outline the reasons for the audit and also will specify the documents they require from you, such as bank statements or other receipts that you need to resolve the issue. This is exactly where your organized documents will come to use. Additionally, an audit letter will clearly contain the due date for your response.
Apart from the time frame, the letter will ask you for your authentic contact information. But most importantly, the below part of an IRS audit letter will ask you to list your agreement and disagreement towards the initiated changes.
The letter has two sides as you will see a direction written on the rightmost corner which reads, “continue on back…”
Generally, the IRS requests documents to explain the questioned item which led to clarification.
Does The IRS Only Send The Audit Letter Through Certified Mail?
The IRS will never try to reach out via phone calls or email. They always prefer to notify a client through certified mail, which will begin with a statement that initiates by letting you know that your income tax return for the particular year mentioned, has been taken for examination.
The letter will include some of your confidential information like your employee ID, taxpayer ID, social security number, and more.
Being alert towards the pseudo-messages is always encouraged.
How Can You Know That You’re Being Audited?
Just because you receive mail from the IRS doesn’t mean that you are being audited. It has various other indications that you might probably not be aware of. You should first look for the requirements made in the letter to identify which type of IRS audit it is so that you can gather the needed documents.
As per the Internal Revenue Service website, the IRS officials will notify you stating you have been selected for an audit. The mail will be sent with the individual or business’s address and full name.
Once you read the document, you will understand if you are being audited or not, particularly when you reach the point where they list out the reasons why you’re being audited.
Types Of Audits
Audits are varied and they are often based on the error you caused. The following are the different types of audits:
- Office Audit
If you are selected for an Office Audit, then the location where the audit is set to conduct would be your local IRS office. In that case, you should submit specific documentation before the IRS office.
- Correspondence Audit
The IRS will require additional receipts or canceled checks for clarifications regarding your tax return.
- Taxpayer Compliance Measurement Program Audit
This is done when the update is required to the data used to write the computer scoring program. In this case, you will have to recheck and resubmit every item mentioned, including your birth certificate. In short, there will be an extensive examination of your tax return.
- Field Audit
It is a risk-free audit, where an IRS officer will come to your place of business to conduct an audit.
What Does A General ‘30-day’ Audit Notice Imply?
A 30-day audit notice is usually sent by the IRS when they complete the audit process. It will clearly mention the auditor’s requirements and changes proposed on the tax return.
If you are convinced with the letter, then you can respond with the same mail after adding your signature to it. But in case you disagree, then you can move forward by filing an appeal.
What Is A ‘Notice of Deficiency?’
In some rare cases, instead of a 30-day notice, the IRS will include a Notice of Efficiency. It will showcase the outstanding amount in your name, attached with a deadline on which they strictly expect you to pay the pending amount of taxes.
You can either choose to pay the amount within the next 90 days, or you can file a petition with the court, in case you find it inappropriate.
What Is A ‘Request For Consideration Of Additional Findings?’
It is a letter containing proposed adjustments and the report of findings made by the auditor. If you agree with the request letter, then you can simply sign and return the form. But if you oppose the auditor’s suggestion, then you are free to file an appeal within the next 15 days.
How Should You Respond To An IRS Audit Letter?
It is imperative to quickly respond to the IRS once you receive a notification via certified mail. In case you delay making a response in the next 30 days then you can be penalized.
Well, making a rapid move doesn’t mean you should handle it yourself. In reality, you have enough time to consult a professional before directly contacting the auditor. A tax professional can help you in many ways.
They will assist you in reviewing the notice and collecting the documents, receipts, or canceled checks required for proving your point made on the tax return. But occasionally, they might need extra receipts to see whether they can find any keyhole to save your money.
However, you should stay vigilant and check whether you or your delegated person is sending the necessary responses within the deadline.
When it is Federal tax audits, it is mandatory to have the support of a tax professional as individuals with less to no tax law knowledge can possibly make it more complicated.
Without proper understanding, you might end up submitting false documents and ultimately giving wrong information, which will further lead the IRS to engage in an extensive and expensive examination. Also, failing to meet the deadline will push you further into trouble as it can lead to levies and property liens.
Moreover, if the auditor finds you fraudulent, then you might be charged with a criminal offense. In case you have some points to be clarified, then you can arrange a meeting with the auditor in the presence of a qualified tax attorney that you hired.
How To Write A Response Letter To The IRS
You can be half-relieved if you have an experienced tax professional on your side.
However, a proper response letter will include:
- Full Name
- Tax Identification Number
- Employee Identification Number
- Contact Information
- Business ID
- The name of the IRS officer who sent you the notice
The response letter must be written in such a way that addresses each issue earlier stated by the IRS officer in the notice. There should be no compromise made on attaching all the necessary documentation along with the letter. You should further end the letter after politely requesting a time and date to meet and discuss the issues.
While you may think of writing the letter yourself, it is quite risky. You should be careful of keeping your response letter flawless, dotting every query raised by the IRS. One mistake can cause you to re-do everything again, which will cost you both time and money.
You can leave this up to your attorney as he will be well aware of the distinct details that are required according to the reason behind your audit.
Once you have done your part, you can wait for the next move from your auditor.
What If You Choose Not To Respond To An IRS Audit Letter?
In case you fuel to respond to your audit letter before the due date, which is generally 30-days, respond late, respond with the wrong credentials because you thought consulting a professional was a waste of money, or do not at all reply, in most of the cases, you will get another mail, but this time, it will not be a notification, but a direct bill inclusive of penalties.
Just as it will cost you more when you respond late or respond wrongly, or do not respond at all, it will equally hurt you when you make multiple responses, as it can make the IRS confused, which is not encouraged.
If you want to make one or more clarifications, then make sure to include them all in a single letter as it is possible that the IRS might leave the rest of your responses unnoticed, preventing them from having a clear understanding of your current status, which can eventually cause you to be ultimately penalized.
What Happens If The IRS Rejects Your appeal?
If the IRS examiner identifies you owe more to the department, and you disagree, then you will first try sending them a request for consideration of additional findings. But even after the analysis if your status is the same as before the IRS, then you better pay the additional amount coupled with penalties.
If you end up in a situation, where you owe more taxes and you happen to not have that much money with you, then you can further request a monthly payment plan, that will ease the burden. If not, then you can also ask for a time extension if you cannot pay the sum any sooner.
If the IRS is convinced that you’re going through a financial hardship, then it might set up arrangements to allow you to defer payment or settle.
So the first thing you should understand is that there is a way out of this and the absolute worst thing that you can probably end up doing after receiving an IRS audit letter is ignoring it. You are supposed to act smart here. Either you can choose to ignore it or react to it within the given period before your audit letter turns into a tax bill.
How Long Can It Take To Resolve An IRS Audit?
If you prefer to solve the IRS audit by mail, then it might take six months to more than a year. Meanwhile, if you consider help from a tax attorney, then you can be freed in just a few short months.
So if you have received an audit letter, then meeting a qualified tax attorney is the best shot. They will assist you throughout the situation and lead you out with the absolute best result.