The tools you need to manage a stressful situation.
© Jetanat/stock.adobe.com, © Jakub Krechowicz/stock.adobe.com; Photo illustration EncyclopÊdia Britannica, Inc
You filed your tax return on time and did your best to ensure everything was accurate. But then a letter arrives from the Internal Revenue Service (IRS). What should you do? First, try not to stress about it. Although most returns are accepted as filed, the IRS does review others to verify information.
Next, make sure you respond by the date noted in the letter. If a professional tax preparer, accountant, or someone else helped you file your return, let them know. Then gather your tax recordsâwhether theyâre locked in a fireproof box, saved to a secure hard drive, or stuffed in a drawer you havenât opened since tax timeâso youâre prepared to answer any questions.
Key Points
- If you receive an IRS letter, it doesnât necessarily mean trouble; the agency may be just seeking information or clarification.
- If you are selected for an IRS audit, it might happen via mail or in person.
- If the IRS audits your return, you have rights, including the right to get help and to appeal the outcome.
Common reasons the IRS sends notices or letters
Getting a letter from the IRS might cause you some anxiety, but it doesnât always mean something is wrong. In many cases, the IRS is just passing on information or asking for clarification. You might receive a notice if:
- The processing of your return is delayed for some reason
- Your return has been corrected or changed
- Your identity needs to be verified
- Thereâs a question about your return
- You owe tax, interest, or penalties
- Your refund amount has changed
What to do when you receive a letter from the IRS
The notice letter will outline what steps you need to take.
- If you agree with the notice, follow the instructions, which may include making payment by the date noted in the letter. If any information on your return has changed, update your records.
- If you disagree with the notice, you can dispute the finding using the instructions in the letter. Be sure to reply by the deadline and include any documents that support your case.
- If you think the notice is a scam, report it by calling the IRS at (800) 829-1040.
Statutory notice of deficiency
If you donât respond to an IRS letter by the deadline, you could receive a statutory notice of deficiency. This legal notice gives you 90 days to petition the Tax Court to have your case reviewed.Â
What to expect during an IRS audit
If your return is selected for examination, the IRS will explain in its letter what to do next. If the audit is handled by mail, submit all documentation by the due date. You can request an in-person audit if you have too many documents to send easily.
If you are scheduled for an in-person audit, gather all the relevant documents and prepare for the meeting. It may be held at an IRS office, your business or home, or your attorney or accountantâs office. The examiner may ask questions about your financial records, business operations, or filing history. If you donât already have a tax attorney or accountant, it may be worth considering hiring one for an in-person audit.
After reviewing your documents, the IRS may respond in one of three ways:
- If your original return is accepted, no further action is needed.
- If the IRS proposes changes and you agree, sign and return the form by the due date and pay any additional tax due.
- If the IRS proposes changes to your return and you disagree, donât sign. You may send additional documentation or request a phone conversation with the examiner. If you still canât reach an agreement, request a conference with a manager or appeal. Once an agreement is reached, sign and return the form by the due date and pay any additional tax due.
How to appeal an IRS audit decision
If you donât agree with the outcome of an audit, you can request a conference with an appeals officer. The letter you receive from the IRS will explain how to begin the process. What happens next may depend on whether you owe more or less than $25,000.
Your rights during an IRS audit or tax dispute
IRS employees are expected to explain and protect taxpayersâ rights throughout the audit process. According to the agency, these rights include:
- Professional and courteous treatment
- Privacy and confidentiality about tax matters
- Clear explanations of why the IRS is requesting information, how it will be used, and what happens if you donât provide it
- The option to have someone represent you when dealing with the IRS
- Payment of only the correct amount of taxâno more, no less
- Assistance with unresolved tax problems
- The ability to appeal disagreements
- Relief from penalties and interest caused by IRS errors
Need more help with the IRS?
The Taxpayer Advocate Service is an independent organization within the IRS that helps with unresolved tax issues. You can reach the service at taxpayeradvocate.irs.gov or (877) 777-4778. The office may be able to help if you havenât been able to resolve a problem, canât pay what you owe, or believe the IRS isnât following its own rules.
How the IRS chooses tax returns to be audited
Thereâs no guaranteed way to avoid an audit. The best you can do is file an accurate return and understand how the IRS decides which returns to review. Some common IRS audit triggers include:
- Information matching. If the income or other details on your return donât match what employers, banks, or other third parties reported, the IRS may flag your return. When that happens, you may receive a CP2000 notice, which explains the discrepancies and proposes changes.
- Related examinations. If your business partner or investor is being audited, your return might also be selected.
- Local compliance. The IRS sometimes focuses on certain areas or industries. If your return falls within one of those, it may be selected.
- Computer scoring. The IRS uses a scoring system to identify returns that have a high rate of unreported income. Some returns receiving a high score are selected for an audit.
- Court-generated reports. If a court links you to a potentially abusive tax strategy, such as those designed to hide income or evade taxes, your information may be sent to the IRS.
The bottom line
Getting a letter from the IRS doesnât automatically mean thereâs a problem. You may have made a mistake that the IRS has already corrected, and you might not need to contact or speak to an IRS agent.
Still, itâs important to be prepared. File your return on time or request an extension if needed, and pay what you owe. Once itâs filed, keep a copy of your tax return and any supporting documentation for at least three yearsâor at least six years if you grossly underreported your income.
If you are selected for an audit, respond as requested. Keep in mind that one of your taxpayer rights is to pay only the tax you oweâno more, no less.
This article was most recently revised and updated by Nancy AshburnThis article was most recently revised and updated by David Schepp
