What to do if You Receive an Audit Letter from the IRS
Responding to an IRS Audit Letter & Gathering Documentation
After you’ve read your IRS audit letter and determined why the IRS chose to audit you, gather all of the documentation that supports the deductions in question. That may include receipts, appraisals, canceled checks, or mileage logs.
You are required to respond to the IRS as soon as possible with either a phone call or an audit response letter within 30 days. If you take longer than that, you could be penalized.
Generally, the IRS has three years from the filing date to audit you, so it’s a good practice to save all of your tax documents for at least that long. However, in cases of fraud or failure to file, they could go back much further.
If you failed to save documentation that would prove your claims are valid, try to find support from third parties that may possess a reasonable way to verify the accuracy of your claims. For example, if you are being audited over donations made in 2019 and don’t have any evidence, reach out to the charities involved and ask them to send you documentation from their records.
A Roadmap for Writing Your Audit Response Letter
An experienced tax attorney can help you to craft a compliant audit response letter. It will include:
- Tax ID number
- Full name
- Contact information
- Employee ID
- Business ID (if applicable)
- The name of the IRS officer in charge of your case
The letter must also carefully address each finding issue that the IRS stated in your audit letter, provide all documentation attached to your letter, and request a time and date to meet and resolve the finding issues.
While it might seem easy enough to write your own response letter, that can be risky.
An audit response letter must be flawless and written precisely to the detailed specifications of the IRS.
A single error could delay a resolution to your audit or worse, lead to a decision that isn’t in your favor.
A skilled tax attorney will know exactly how to respond to the IRS based on the reasons for your audit and your unique circumstances. An audit response letter that is done well can quickly expedite a resolution.
After you or your tax attorney send in your documentation, along with a written explanation of why you disagree with the findings, the IRS will review your information and send a response.
What Happens if You Don’t Respond to an IRS Audit Letter?
If you don’t respond to your IRS audit letter within the required 30 days, respond late, don’t respond at all, or don’t respond correctly because you failed to contact a tax attorney, the IRS will likely disallow the items in question on your tax return and send a Notice of Deficiency allowing you to challenge the addition to tax in Tax Court. If you fail to file a timely tax court petition to challenge the tax, the tax will be assessed, and they will send you a bill for additional taxes – plus penalties and interest accrued from the date of filing.
It’s also important not to send multiple responses to an audit letter. If the IRS central processing center doesn’t connect all of your letters, it could appear as though you don’t have a complete response, preventing the IRS from understanding your position, and even lead to you to be penalized.
How Long Does It Take to Resolve an IRS Audit by Mail?
Mail audits can take anywhere from three months to more than a year to be resolved. If you hired a tax attorney to help you and respond accurately and on time, that gives you the best possible chance of wrapping up an audit more quickly.
What if the IRS Decides You Owe More Taxes?
If the IRS tax examiner determines you owe more taxes, and adds penalties, you can agree to pay or request that the IRS Appeals Office review your case.
If you end up owing more taxes and don’t have the money available to pay right away, you can set up a monthly payment plan or ask for an extension.
If you are going through a financial hardship, the IRS offers other arrangements that may allow you to defer payment or settle the debt, such an Offer in Compromise.
Make no mistake about it. The worst thing you can do when the IRS sends you an audit letter is hide it in your drawer or pretend it doesn’t exist. Your tax problem will not go away, and you have a defined amount of time to respond before the audit notice becomes a tax bill.
If you have received an IRS audit letter, contact a tax attorney for help with your tax problem now.