Tax audits are not as scary as you think, however, occasionally they happen. Everything you’ve heard is wrong–turns out receiving an IRS letter also known as “correspondence audit,” is not the end of the world. It’s likely that you won’t even need to visit an office or call a representative to handle your situation, whatever it may be–most issues can be handled via mail. The letter usually contains clear, simple instructions on what you’re expected to do next. Here’s a look at some tips, should you get a tax audit and need help:
Keep Copies of Your Records
This is, of course, a pre-emptive move. Keep records of all of your transactions, 1099s, W-2s, paycheck stubs, and, of course, a copy of your actual tax return. Record all correspondence with the IRS after you receive it. When dealing with the professionals over the phone, make sure to take down their ID numbers, names, the time at which you spoke to them, and specific points they may have related to you.
Do The Calculations and Talk to a Professional
Human error is always inevitable when the IRS sends calculations. In 1998, the IRS sent apologies to 20,000 taxpayers for mistakes in handling their accounts. Math mistakes rarely lead to a full audit. In this situation, it’s best to send the IRS a printout of your calculations, along with any important or relevant documentation. Make sure you make your response as clear and concise as you can. You can also request additional information if the letter itself is unclear to you. If you’re confused or unsure, however, seek out a qualified tax professional to help you sort through the letter’s requests.
Know The Common Types of Letters
Taxpayers are typically selected in the following ways:
1. Random selection based on statistical data
2. Document matching–match 1099s with W-2s with what individuals actually report. It deals with unreported income from another source–sometimes, it’s a company you may not be familiar with, or income reported on an earlier return.
3. Questioning accuracy of taxpayers’ returns. Correction notices are when the IRS says they’ve found an error on your return and corrected it for you. They usually ask you to remit a certain amount of more money. In this case, sign and date the notice and include your payment.
The only notice that permits the IRS to do anything is the CP 90–Final Notice of Intent to Levy and Notice of Your Right to a Hearing. After the final notice, it must wait 30 days before taking action. During the 30-day window, you can file a request for a meeting with an IRS appeals officer, or CDP.
Dispute When You Can
The Government Accounting Office says that 48% of IRS notices are “incorrect, unresponsive, or incomplete.” If the bill is for a low amount–under $600–you should certainly dispute it. It might be wrong, after all. Don’t forget about your state returns, too–if you respond to any federal letters, you may have to change the information on those tax returns, as well.
Be Calm–and Respond on Time
Again, don’t automatically panic if you get a letter. (More than one million letters are sent each year because people failed to sign their returns). If you do end up owing quite a bit, the IRS will usually work with you on a payment plan. And sometimes, after letters are sent, the IRS will actually owe you more money. Just make sure you respond on time–usually, within 60 days–or the IRS may put a lien on your property, serve a penalty, or take other unpleasant action.