IRS Audits and Examinations
It is very important to promptly respond to any audit letters and exercise your procedural rights before the Internal Revenue Service as well as any state and local tax authorities. By overlooking audit letters, you may wind up with a tax liability that is truly not correct. If you fail to respond, you may have less options to contest your tax liability if you lose your appeals rights.
The IRS audits returns for various reasons including research purposes. Sometimes, audits can be easily addressed through a well-written letter showing proof of each deduction. Depending on how much is at stake, you may want to hire a competent tax professional to represent you before the IRS or other tax agency.
Many taxpayers ask why they were chosen for an audit and what to do in this situation. Some taxpayers receive a CP 2000 notice – this is an IRS letter that proposes an increase in tax due to additional income not reported on the return, or, the removal of a credit or deduction. It is important for taxpayers to understand that the CP 2000 notice is system-generated, and that they should not jump to the conclusion that the proposed tax adjustment is correct. In scenarios like these, you must submit proper documentation to the IRS, and adhere to all deadlines in order to prevent a tax increase. A well-written letter that advocates your tax position and provides organized documentation is imperative to reduce the proposed tax assessment. If you need more time, the taxpayer should call the phone number on the letter and ask the IRS to notate your account. The agency will allow additional time for you to submit this information.
In addition to the tax, the IRS typically includes an accuracy-related penalty on these notices. For situations where mistakes were made, the taxpayer should not be afraid to ask for penalty abatement, and you may have merit to ask for relief from this penalty. If you do not effectively communicate with the IRS, you may receive a final notice of deficiency, forcing you to file a petition in the U.S. Tax Court or accept the proposed tax assessment. (If you miss the tax court deadline, you may still have an option to contest your results through audit reconsideration; however, it is better for you not to get to this point.)
My return was selected for an audit and I have been assigned to an examiner. What should I do?
One of the first steps you should take is to establish reasonable deadlines with the examiner when it comes to submitting the requested information. If information is missing, then this must be properly explained. Typically, most examiners are reasonable when it comes to the information submitted — while the taxpayer has the burden of proof for his/her position, they understand that the taxpayer may not have kept absolutely every single receipt. That being said, if you are encountering difficulties with an examiner, don’t lose hope. You have the option of going to appeals and it’s important to preserve your appeal rights.
Hiring a competent tax professional who can navigate the procedural process at the IRS and effectively advocate on your behalf is crucial to the success of your case. A skilled tax professional should review your return and evaluate its weaknesses and strengths. (For example, perhaps you were entitled to a deduction or credit that you did not take.)
Audits and Examinations Reconsideration
Taxpayers who would like to contest the validity of a tax assessment, may request audit reconsideration. This is available when the taxpayer disagrees with the amount assessed by the IRS through an audit or a “Substitute for Return”, prepared by the IRS when a tax return is not submitted by the taxpayer. A taxpayer may request audit reconsideration for various reasons, such as: 1) the taxpayer moved and did not receive correspondence from IRS, 2) the taxpayer has additional information to present that he/she did not provide during the original audit, and/or 3) the taxpayer did not appear at audit.
In order to successfully request audit reconsideration, the taxpayer should write a letter requesting audit reconsideration and state the adjustments at issue that the taxpayer would like changed. The taxpayer must submit information that was not previously considered and must be very clear on the changes he/she would like the IRS to consider. If available, the taxpayer should submit Form 4549 “Examination Report” along with the new documentation. The taxpayer should send this request to the IRS address on the Examination Report.
If the taxpayer needs help with audit reconsideration and feels they were unrightfully denied their rights to contest the tax assessment, they can also contact the Taxpayer Advocate Service. Before submitting additional information to the IRS, it may be helpful for the taxpayer to request the administrative case file from the IRS in order to determine what may have been previously submitted to the IRS (assuming a prior audit occurred and the taxpayer missed their procedural rights to contest the proposed adjustment.)
If you have been selected for an audit, our tax professionals can provide you with options.
For more information, please contact our team at 1 888 TAXFIRM.
