The dreaded IRS audit. You’ve received your audit letter in the mail, but now what?
If you’ve been selected for a tax audit, it simply means the IRS is taking a closer look to make sure you’ve accounted for all your income and that you’ve only taken the deductions and credits you were allowed by law. During an audit, you’ll be asked for documentation that supports the information you’ve declared on your tax return. It’s important that you provide the information just as the IRS has requested it – this is where a tax professional can be extremely beneficial.
IRS e-mail scams – is your audit legit?
If you have any questions or doubt about an audit notice you have received via email, your tax professional can clear up any confusion. However, you’ll almost always receive your audit notice by mail. The IRS never initiates contact through social media or via email, and they’ll never attempt to get a credit card or other personal information from you in this manner.
Types of IRS audits
- Correspondence audit – You’ll receive this via U.S. mail. Correspondence audits make up approximately 75% of all IRS audits and they’re the simplest type. The IRS will request more information about a particular part of your tax return. You prepare the information and send it back.
- Office audit – This takes place at an IRS office. If the IRS has questions about your tax return, and they’re too complex for a correspondence audit, but too small for a field audit, you’ll get a letter in the mail requesting that you come into an IRS office for the tax audit.
- Field audit – This takes place in person, at your home or business, and is a more comprehensive and detailed IRS audit.
- Taxpayer Compliance Measurement Program audit – In this type of audit, the IRS will analyze each item on the tax return.
How to respond to an IRS audit
- For a correspondence audit, prepare your complete response in regards to the items the IRS is questioning and send it back to them.
- For office and field audits, prepare for the meeting with the IRS agent by gathering all information they have requested. You should be prepared to answer questions regarding unexplained bank deposits or additional income. The IRS agent may also ask about your job, additional income, family, or any additional businesses.
- If you don’t have the documents to support certain items on your return you may have to rebuild them through third parties or other records.
- If the IRS thinks there may be an adjustment to your return they will gather more information. You’ll get an Information Document Request that you must complete by the given deadline.
- If you and the IRS disagree on any part of your return, this is the time to present your facts.
Appealing an IRS audit
After all the information has been presented, the IRS will conclude the audit by proposing either no changes; or adjustments to your return. You’ll receive a report of their findings and you will be given 30 days to appeal, should you disagree with their statement. Appeal requests are handled within the IRS Office of Appeals. After the 30 days has expired, the IRS will send you a notice letter that indicates the tax audit is closed. At that point any appeals must be petitioned with the U.S. Tax Court.
With a mail audit, it is important to note that the letter proposing adjustments is your 30-day letter. This is oftentimes overlooked by taxpayers and they lose their ability to appeal the audit with the IRS.
Hiring a CPA to help with your audit
It is always in your best interest to hire a local tax professional to assist with your IRS audit, especially when it comes to more complex audits. Prior to the meeting you should prepare the following documents for your CPA.
- A copy of your IRS audit letter, including any requests or forms that came attached
- Information and/or documents that are being requested
- A copy of the tax return in question
- Copies of your returns from the two years prior to the return in question
- A copy of the most recent year’s return (if that’s not the return being audited)
- Any documents that show the results of a prior audit
- Copies of any other letter or notice that you have received from the IRS
- Copies of documentation that you provided to your initial tax preparer
If you have questions on an upcoming or previous audit, one of our Grand Rapids tax professionals would be happy to help you. Contact us to schedule a tax meeting at our Grandville office.