How to Respond to an IRS Audit Notice

An IRS audit is an examination of taxpayers’ returns to verify the accuracy of information such as deductions and the reported tax.  Selection can be random as well as by computer screening.  The audit process commences with an IRS notice to the taxpayer.  Audits are unwieldy for many taxpayers and a misstep can cause unproductive conflict with the IRS.  Maicher CPA Pllc uses its experience to represent business and individual clients in resolving audits.   Here are some key tips for responding to them.

Foremost, never ignore the notice because delays can result in the waiver of your rights to object to adverse changes to your tax.   Forward the notice immediately to Maicher and in the meantime gather the documents the notice requests or likely involves, which may include, for example: bills, canceled checks, legal papers, divorce settlements, property acquisition, loan agreements, travel tickets, medical/dental records, capital improvement, appraisals, employment documents and other items. There are three types of audits: (a) Correspondence Audits (a/k/a Campus Examinations), the most frequent type of audit, requiring taxpayers to mail responsive records to the IRS, (b) Office Audits requiring taxpayers to personally meet at an IRS Office to review records and other information, and (c) Field Audits where IRS agents visit the taxpayers’ homes or businesses to review records and other information.  Audits result in three possible outcomes: no change to the return; agreement with the IRS’s proposed changes to the return; or disagreement with the IRS’s proposed changes.  Taxpayers disagreeing with the proposed changes have certain time-sensitive rights to challenge them.  Also, beware that you may receive what’s known as an IRS Letter P2000 notifying you that your return conflicts with financial data reported by third parties, and further identifies the discrepancies with a proposed resolution.  While this letter does not constitute an audit, it acts like one and it should be immediately sent to Maicher to prepare a response.  

Take-away:  An audit notice is not the end of the world for taxpayers and the risk of adverse outcomes are often reduced by promptly responding to and cooperating with requests. Never ignore a notice or represent yourself.  Call Maicher for further information concerning ways to avoid audits or for assistance if you receive an audit notice or a P2000 Letter.   

Sources:

“IRS Explains CP 2000 Letters Sent to Taxpayers When Tax Return Information Doesn’t Match Information from 3rd Parties,” IRS Publication, March 28, 2022.  

“IRS Audits,” IRS Publication, March 14, 2022. 

“What People Should and Should Not Do If They Get Mail from the IRS,” IRS Publication, February 24, 2022. 

“What Should You Do if the IRS Comes Knocking on Your Door?” Forbes, May 24, 2021.