Getting audited by the IRS is a stressful event in the best of circumstances. When you get a letter from the IRS, it can be hard to know how what you should do or how to respond. But there are a few simple things that you can do to make the process a little better and achieve the best result you can. Here are five things that you should do when you receive a letter or notice from the IRS.
1. Don’t ignore it
If you get a notice from the IRS, such as a CP2000 Notice, underreporter inquiry, the worst thing that you can do is to ignore it. Each notice will tell you what the issue is, how to respond, and how long you have to respond. Responding to these notices often keeps your options open. But, ignoring it will often trigger the worst option and sometimes penalties and interest. Even if you agree with what the letter is asserting, you should review it and make sure there are no mistakes or surprises in the document.
2. Understand what the IRS is examining
Closely related to the first item on this list, make sure you understand what the IRS is asking for and why. If you receive a CP11, changes to a tax return resulting in a balance due, then the IRS made some change to your return, and you now owe the government more money. This may be a simple issue, such as your employer correcting your W-2. Or it may be something more complex and less obvious like someone incorrectly listing you on a 1099. However, this form is likely focused on a question of income tax, not payroll or other types of tax. Also, it leads you to the right year and where to look on your tax form. With that information, you can begin your research into whether you agree or not, as well as the next steps you need to take.
3. Get organized
Once you understand the issue, the next step is to get organized. Suppose the IRS is performing a full exam. In that case, you will need to have your books and records ready to be reviewed, get your place ready for a visit by a revenue agent, and have supporting documentation ready to be presented. If you disagree with the IRS’s conclusion in the letter, you need to prove why you are right and why the IRS is wrong. Just saying so is not enough. Sending in a box of unorganized receipts will do little more than annoy the IRS and put you in hot water. Laying out a clear explanation supported by the right documentation will get you a better result.
4. Explore your options
So you have received a communication from the IRS, you read it carefully, and responded in time with a detailed and documented explanation, but the IRS still does not agree. Now what? Do you have to accept the result?
In most cases, no. There are still ways to resolve the issue. You may be able to talk to a supervisor regarding the matter. Also, you can potentially appeal the case to another division in the IRS. And if all that fails, you may be able to take the IRS to court. This will all depend on the specific facts of your case, but you still have options.
5. Get someone to help you
Throughout the entire process, you are entitled to having a professional represent you. When you have assistance, the IRS will deal with your representative. You should look for someone that has experience dealing with the IRS, knows how to respond, and can help you understand the process from the first notice to the final resolution option.
If you have received a letter from the IRS, contact us today to understand what it means and what your options are.