How an IRS Audit Starts

An IRS Audit is a review of an individual’s or business’ accounts and financial information to ensure they are complying with tax laws and paying the correct amount of taxes. The IRS is focused on collection issues and selects tax returns for audit where they think they will be able to find additional taxes due. With preparation and advice, you can fight an IRS audit.

IRS Letter 566
Most taxpayers who are being audited by the IRS receive a letter. IRS Letter 566 is a notification of a correspondence audit. The letter will indicate what items on your tax return are being audited. Some common tax return items that might be included:

  • Adjustments to Income
  • Schedule A – Itemized Deductions
  • Unreimbursed Employee Expenses
  • Schedule C – Gross Receipts
  • Schedule C – Expenses
  • Tax Credits

The IRS will also include Form 886-A which lists the documentation they are requesting. Since you have 30 days to respond to this IRS request, you should start gathering the paperwork listed on this form. Often, the IRS will ask you to fill out additional forms detailing your expenses or other accounting info.

In a correspondence audit, the response to Form 886-A is your defense of your tax return. An experienced tax resolution specialist can help you present the best and most complete response to the IRS. The IRS will examine these documents carefully to find ways to disallow expenses and credits, while looking for extra income in order to assess additional taxes. Filing your response in the best possible way is a crucial first step in emerging from an audit with the least damage possible.

Many taxpayers are not sure how to substantiate their tax return items or may be missing certain documents. It is prudent to speak to someone who can help you find the best strategy for presenting your case to the IRS based on what they have seen IRS auditors ask for in the past.

IRS Letter 3572 and IRS Letter 2205
Some taxpayers receive IRS Letter 3572 or IRS Letter 2205. The IRS is asking for a field audit. They are asking the taxpayer to bring documents and records to the IRS office for an examination there. Or they may ask to conduct the audit at your business. Be wary of this tactic. Consult with a professional before scheduling an IRS auditor appointment at your own premises. A tax problem specialist is familiar with the IRS audit techniques for your business and can advise you on strategy.

While you may feel that your income tax return is accurate and that you are able to prove this to a trained IRS auditor, i do not recommend attending this meeting yourself. The auditor will ask you many questions and will try to expand the scope of the audit, given the chance. It is difficult to be objective when the IRS is examining your own taxes.

IRS Letter 3572 and IRS Letter 2205 will ask you to call the IRS to schedule an appointment. Once you do, and every time you call the IRS, they will ask you additional questions to gather as much information as they can. Instead, you should call a tax problem specialist. Once you’ve signed a Power of Attorney, they can speak to the IRS on your behalf and meet with them to defend your tax return.

A field audit is more serious than a correspondence audit. Both of these IRS audit letters indicate that an IRS employee has already researched your return. Generally, they provide just 10 days to respond so do not delay.

IRS Audit Telephone Call
The IRS may call you instead of sending a letter for an office audit. Be careful. Instead of scheduling an appointment, you should tell them that you will be contacting a representative to meet with the IRS. Write down the IRS auditor’s contact information and call a tax problem specialist for help. Once you have signed a Power of Attorney, they can call the IRS auditor and begin working on the best defense of your tax return.

All taxpayers are entitled to representation and it can make a big difference in the outcome of an audit.

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