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IRS Audit Letter | What Do I Do If I Receive An Audit Notice

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IRS Audit Letter | What Do I Do If I Receive An Audit Notice

What Do I Do If I Receive an Audit Notice?

Nothing is more stressful than a Notice of Audit from the IRS or State for income, sales or employment taxes.  Simply put, it means that your records are going to be examined and any potential mistakes (both good and bad) could possibly come to light. The point of an audit is to verify that your records are correct; this is a key point!  We have represented many clients in audit where the end result was the IRS owed our client money.  While a refund is not always the case, we find many clients underreport expenses or miss credits.  While an audit is clearly not something you wish for, with the proper representation, it MAY not need to be feared.  That being said, you don’t have to be scared of an Audit Letter if you have adequate records. In fact, if you take the right steps you can get past this part of your tax life in no time at all.

Here are some recommended steps to take if you receive an IRS audit letter:

1. Stay Calm and Make Good Decisions. Although your instinct may be to panic, keeping your head and retaining your composure will enable you make good decisions that are in your best interest.  An example of a good decision would be to respond to the notice even if you have not decided if you are going to tackle this one your own or not.  The key is to acknowledge the audit letter and establish the first interview.  DO NOT let the audit initiate the first interview while you are on the phone at the time of requesting the initial interview.  Unfortunately, you will give answers without fully understanding the question.  There is NO REQUIREMENT for you to answer these questions prior to the initial interview.

2. Read the Letter to See What the IRS is Requesting. The government has different types of audits and the letter will indicate the type of audit and the items the government is requesting.  The letter will indicate the types of audit;

  • Income Tax (field or correspondence)
  • Sales Tax
  • Employment Tax

The type and complexity will determine whether you want to tackle this on your own.

3.  Seek the Help of a Tax Professional. It is typically not advisable to represent yourself in a tax audit case. An experienced professional, such as a Certified Tax Resolution Specialist, Enrolled Agent, Attorney or CPA, will have extensive tax code knowledge and can act as your representative before the IRS.  If you have one of these representatives, unless summoned to appear (not likely), you will not have to meet with the Revenue Agent.  This is a very good thing because taxpayers tend to answer questions without really understanding what is being asked, OR Revenue Agents ask trick questions that are designed to lead unsuspecting taxpayer down a primrose path.  Think long and hard before deciding to represent yourself in an audit.

4.  Determine a Plan of Action. The worst thing that you can do is go into an audit without a plan of action.  You need to understand the strengths and weaknesses of your document(s) and whether you have the support for the deductions taken.  Once you have done this analysis it is usually not too difficult to determine what triggered the audit.  Armed with this information you can formulate a plan of attack.  The worst thing you can do is let the auditor dictate the direction of the audit.  For those that have not been exposed to this lovely event, it is a battle of wills.  You want to present your strengths and avoid your weaknesses. This is where a trained professional will be extremely valuable.

5.  Don’t Hide, Lie or Fabricate Documentation. The worst thing that you can do is NOT SHOW UP!  Everything goes downhill from there and it will absolutely not go away.  The second worst thing is to create documents that did not exist or lie.  There is a huge difference between directing the meeting to present your strengths and make the IRS point out your weaknesses and hiding/lying or fabricating documents.  This is a fast way to creating a need for a Criminal Tax Attorney to keep you out of jail.  Remember the highest number of Criminal Tax Case referrals come from the Audit Unit.

 

If you have received an audit notice, the above steps provide a useful guide in helping you through this very stressful situation.  If you are unsure of the reason for the audit notice or feel extremely uncomfortable in handling this on your own, seek out the help of a trained tax professional to represent you in the audit. Should you end up with a balance due, a trained tax professional may be able to minimize the penalties.

IRS Notice CP501- Reminder of Past Due Balance

IRS Notice CP 23 | Estimated Tax Payment Discrepancy | Balance Due

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