Groups » 4 Things to Know to Deal with an IRS Notice Better

Internal Revenue Service tax audits are much dreaded and a notice for one is something that no taxpayer wants. But tax audits do affect a small percentage of the taxpaying population, and it is estimated that only about 1% of filers get audited.

Tax audits are time-consuming and complex, and chances are more likely that the Government itself does not want to conduct them. But if there are visible discrepancies in your reporting, then chances of your returns being audited are high.

A tax audit is an accounting procedure and involves detailed examination of your individual or business financial records to ascertain that you have filed returns accurately. You will be required to prove that your initial returns are correct and full, along with all supporting documents and proof, and the auditors will not ask anything further.

If you have received an IRS tax audit notice, remember that it is not the time to panic. If you act on it smartly and sensibly, then you will be able to face an audit with confidence. Here are a few things you must know about what you need to do if you have received an IRS notice in your mailbox.

Know What It Is About

All tax audit notices are not a result any errors in your returns. It can also be a random audit where you or your business has been selected on a random basis. It is up to you to check with the IRS the reason behind the audit.

At the top right corner of your IRS notice or letter there will be a serial number which you can use for all further communication and correspondence with the office. You will also be assigned name and contact number of the DOR officer who is handling the case.

Other details in the letter will typically include the discrepancies, if any, found in your returns and the possible implications on your tax situation. You may also be asked to provide specified information or documents. You can also inform the IRS if you disagree with the demands that have been raised.

You will also be given the date by which you need to reply, at the latest.

Understand Why You Have the Audit

You need to know why your personal or business returns have been chosen for the audit. It could be due to any of the reasons below;

Specific activity on your return that does not match your reporting. This usually happens when there is glaring mismatch like high deductions relative to your income, return form entries that do not match reporting, and inconsistency with previous years’ returns all are potential red flags.

Related examinations where your returns need to be examined for information on transactions with another business or individual that is being audited.

A high Discriminate Information Function (DIF) score is another reason behind audits where returns are compared among peer groups who have similar income and job profiles. If your returns vary significantly from that of your peer group average, then chances of an IRS audit increase.

Random selection can also occur where your returns are subjected to routine audits.

Determine the Nature of Audit

There are different types of audits depending on the kind of information the IRS is look for. Each type of audit has its own requirements and will require you to furnish different documents. Based on the type of audit you will also be able to determine whether you require the services of a reputed Arizona IRS audit attorney.

Correspondence Audit – The IRS office requires more information and wants you to clarify or explain any part of your return. This generally involves request for receipts, bills or other documents that you can mail to a given address. Remember that you should never submit originals of documents or the lone copies you have.

Office Audit –You will be asked to submit specific documents at local IRS office and the audit will be carried out there.

Field Audit – In this type of audit an IRS officer will come to your place of business to conduct the audit where you will have to hand over financial records for examination.

Taxpayer Compliance Measurement Program (TCMP) Audit – This is the most extensive and elaborate auditing procedure where every part of your return will be audited. You will have to furnish documents to substantiate every detail. Birth and marriage certificates will be required to support entry statements in your return.

In field and TCMP audits, it is recommended that you have a lawyer present while the audit is being conducted.

Get Your Documentation in Order

Auditing is done primarily to get more information on specific aspects of your return. Once you know what documents are required, you can go about getting everything in order.

Properly organized documentation allows IRS officials to carry out their job hassle-free and quick. Disciplined documentation also denotes prudence and care regarding finance matters.

So when you get the tax notice, read it carefully and understand what documents you are required to furnish, and move accordingly. Mistakes in calculations, oversight or mix up of information on part of IRS are not uncommon. Before paying the requested amount in the notice, ensure you go over the details with a tax professional. If you had a professional file your return, he or she should be responsible for handling the notice and resolving it in a timely manner.

Conclusion

Tax notices are not to be feared or ignored. If you pay proper attention and get your paperwork in order most notices do not cause any damage. It is important that you get professional help to get things moving towards a positive outcome.

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