The thought alone of receiving an IRS audit letter can get our sweat glands flowing and our stomach grumbling. What will happen now? Am I in trouble? What have I not disclosed on my taxes? Would I go to jail? And on and on goes the voice bouncing helter-skelter in our heads. Well, calm down! It is not as bad. In fact, keep your cool and take a step back to re-organize yourself with a complete presence of mind. So I got an IRS audit letter, what do I do next?
The Why?
The first basic thing you need to do is re-read the IRS audit letter as if you were helping a friend understand the letter. What does the letter read? What does the IRS want from you? The answer could be right within your reach or something you need to prepare but it has to start with the question- What does the IRS want from you?
Chances of being audit are small and most of the cases being audited get picked at random like a lotto except this one generates the opposite reaction for the participant. According to Benham, Miller and Harris, Inc., “Audits can range from the simplest need to something extremely complicated. They can be easily handled by the person being audited unless there was foul play involved on purpose or you have something to hide in which case you should seek professional help sooner than later.” But for those who has been honest or “almost” honest, handling it yourself shouldn’t be too hard. The audit letter could also only be to notify you of an audit already performed by the IRS with information on how it affects you. So read and re-read the letter.
The When?
The second most important part to look for is the deadline. When does the IRS need an answer? Leaving the letter in the pile of your other mail for later will do not good. Procrastination can bring harm especially if you forget and putting the letter out of site will not make it go away. So make a mental and if need be, a physical note of the deadline date by which you need to respond. If you do not respond in time to these letters, you are bound to sit face to face with an IRS auditor answering questions and remember, the auditor is not looking out for you, the taxpayer.
The How?
Next you need to know how the IRS needs the information. Though the most common way of communication for the IRS is US Mail, it is crucial to find out if the IRS requires a response by US Mail. If yes, you can breathe a sigh of some relief because at least you do not have to see an agent in person. But if the letter reads that an IRS agent will come visit you, do not worry. They won’t imprison you. All they need is to see the documents requested. The rest follows based on how the meeting goes.
The What?
Ok, so now you know what the IRS wants; when you need to send and how you need to communicate with them. You are much more in control of the situation than you first started off when you received the letter. Next step is to note down what the IRS needs and put a file together with those documents. The list of acceptable items you can choose from, to respond to the audit is usually included within the letter. They literally mention what you need to do. Prepare yourself. Have all the answers ready. Dot all your I’s and cross all your T’s. If you meet an IRS agent, be polite and patient. Co-operate.
Like mentioned earlier in this article, the letter could just be a notification, or intimation or information sought by the IRS. For a quick review at the various topics and notice numbers that the IRS has in place for various situations, please take a look at “Understanding Your IRS Notice or Letter”. This lists the notice number, its description and the topic.
Bottom-line:
Possible results are
1) A tax adjustment with you getting more refund (rarely the case)
2) A tax adjustment with you having to pay back more. (Where the documentation provided does not deem satisfactory for the auditor and your return gets amended by the IRS). This might include taxes and penalties. You should find out the various pay back schemes from the IRS that they accept to help balance the financial strain it will put on you.
3) No changes in your refund
4) Extreme cases where it gets categorized as intentionally committed fraud or crime and the investigation gets deeper. You will recognize when such a situation arises and you must seek professional expertise to represent you right from the start with no delays. You can also seek Advocate services.
