What to Expect If You Receive an IRS Audit Letter
A tax audit is something that most people fear, and if you receive an audit notice, you know that your fears have now become a reality. Luckily, the process may be easier than you think. An audit can be particularly straightforward if you filed an accurate return and have well-organized financial documents. If not, the audit may be a bit more complicated.
To get help now, contact us today at the W Tax Group. We have extensive experience helping people with business and personal audits from the IRS and state revenue agencies. Want to know more about the audit notice? Then, keep reading for an overview.
What to Do If You Receive an Audit Notice
Review the notice to figure out which parts of your return the audit addresses. Then, look for documents to support those details. For instance, if you need to prove the revenue you reported for your business, you will gather point-of-sale (POS) reports, sales invoices, and bank statements.
Decide if you want someone to represent you during the audit. For straightforward situations, you may want to contact the tax pro who did your tax return. If they made a mistake or if the issue seems overly complicated, reach out to a pro who specializes in audit representation.
There are a few different types of audits, and the way you should respond varies. Here’s a brief overview.
- Correspondence audit — You will mail the IRS the information requested in the audit letter. Send copies so that you don’t risk losing the originals in the mail.
- Office audit — You will bring documents to the auditor’s office. Generally, you will have a phone meeting first where you go over the auditor’s requests.
- Field audit — The auditor comes to your place of business to look at your documents, bank records, and other supporting details. Usually, they will arrange a time with you beforehand. They won’t just show up unannounced.
- Taxpayer compliance measurement program audit — The auditor asks for supporting documents for every detail of your return. In addition to financial details, this includes birth certificates, marriage certificates, and other documents to prove that you took the right filing status and only claimed eligible dependents. This may happen as a correspondence, office, or field audit.
Note any deadlines and mark them on your calendar so that you don’t miss them. The IRS is very strict about audit deadlines.
What If You Need More Time?
The IRS will give most people an automatic 30-day extension as long as they ask for one. If you’re facing a correspondence audit, the IRS recommends faxing in a request for more time. With field and office audits, you should contact the auditor or their manager to ask for more time.
Additionally, if you tell the IRS that you need time to find audit representation, the auditor will often give you extra time. The only exception is if the IRS has sent a Notice of Deficiency via certified mail. In this case, you won’t be able to get an extension.
What If You Don’t Have Receipts or Tax Statements?
If you don’t have information to back up the details on your tax return, you should contact other parties to provide you with information that they may have. For instance, if you don’t have a copy of your W2, you can ask your employer to issue you a new one. Similarly, if you’ve lost income statements from your pension plan, financial institution, or other payer, you should contact them to ask for copies.
In some cases, you may need to reconstruct your records. The process varies based on the situation, and in complex cases, you may need to work with a forensic accountant. Contact the auditor to explain that you don’t have your records and to ask for extra time.
Keep in mind, however, that taxpayers generally are expected to keep their tax-related records for at least three years, and sometimes up to 7 years, depending on the type of claims on their tax return. Before telling the IRS that you haven’t followed this rule, you may want to reach out to a tax attorney. They can talk with you about the implications of not saving your tax records.
What If You Don’t Respond
If you don’t respond to the audit notice, the IRS will generally disallow the element that it is auditing. Then, the IRS will adjust your return and send you a tax bill.
For instance, say that the IRS is auditing your claim for an American Opportunity Tax Credit (AOTC) and you don’t respond. Then, the auditor will remove the credit from your tax return and send you a tax bill.
Why Did You Receive This Notice?
You may receive an audit notice because the IRS randomly selected your return or due to a red flag such as the following:
- A discrepancy between your return and other documents submitted to the IRS.
- An income that doesn’t support your lifestyle or make sense for your zip code.
- An unusual percentage of expenses compared to revenue for your industry.
Overall, audit rates are relatively low. On average, the IRS audits about one out of every 200 returns. However, people with no income or more than $1 million in income tend to be audited at higher rates.
Is This Audit Notice Real?
An IRS audit letter comes in an envelope from the Department of the Treasury Internal Revenue Service. The right side of the letter has the IRS logo and contact details. The top right side of the letter usually contains your name, tax ID number, and the tax period being audited.
Unfortunately, scammers prey on taxpayers’ fears of audits, and they may send out fake audit notices. These notices may urge you to call a phone number that the scammers have set up. Once you call, they’ll pretend that they are from the IRS and demand immediate payment. Then, they’ll take your money and run.
If you think an audit notice may be a scam, reach out to a tax professional. Or contact the IRS directly. To be on the safe side, don’t use the phone number printed on the audit notice. Instead, call the IRS’s main number at (800) 829-1040. The person who answers the phone will be able to look into your account and let you know if you’re really being audited.
Does the IRS Send Audit Letters as Certified Mail?
An audit notice will always come through the mail, but it doesn’t necessarily come as certified mail. The IRS’s website does not specify whether or not the agency sends these letters through certified mail. Many tax attorneys’ websites say that the IRS sends audit notices through certified mail, but they may be incorrect.
Does the IRS Always Notify Taxpayers With a Letter?
The IRS only sends out audit notices through the mail. If you receive an email, social media message, or phone call about an audit, don’t engage. The IRS never contacts taxpayers through social media, and audits never start with an email or phone call. Again if in doubt, you can also reach out to a tax professional or contact the Taxpayer Advocate Service for guidance.
CP2000 Vs. Audit Notice
A lot of people confuse audit notices and CP2000 letters. An audit notice is when the IRS asks for additional clarification about your tax return. A CP2000 is a notice the agency sends when it has adjusted the income reported on your tax return. If you receive a CP2000, you must reach out to the IRS quickly if you don’t want the changes to become permanent.
What If You Receive a Bill Instead of an Audit Notice?
If you receive a bill instead of an audit notice, the IRS may have completed an audit without your knowledge. Or the IRS may have adjusted your return without an audit. In both cases, you should have received a letter alerting you about the situation, but you may have missed the letter if you changed your address or thought it was junk mail.
If the IRS has already closed its initial audit without your involvement, you should request an audit reconsideration. If the IRS has adjusted your return and assessed a tax, you can appeal the assessment. But keep in mind that there’s a small window for reconsideration and appeals, and if you miss it, you may need to pay the tax under protest and request a refund.
Get Help Responding to an Audit Notice
An audit doesn’t have to be a nightmare. With the right help, you can easily navigate the process with as little stress as possible. However, missing the deadline or sending the wrong response can delay the process or cause you to fail the audit.
To get help dealing with an audit notice, contact us at the W Tax Group today. We’ll start with a free consultation and then help you find the best way to deal with your upcoming audit.