Dustin Wells EA, Tax Specialist
First, if you ever receive an IRS letter in any form you should contact your tax professional and provide them with a sufficient copy of the correspondence as soon as you get the letter or potential tax audit notice. This will assist the tax professional in knowing what you received from IRS and determine if letter is actually an IRS form or not. Moreover, the tax professional should be able to tell you if the IRS correspondence is real or fake. In general, if you receive a letter or a form of correspondence from the IRS in paper form you are likely dealing with a legitimate letter.
The IRS, or assigned Revenue Agent if audit, will NOT contact you initially via email. Never. However, recently, it appears localized IRS Revenue Agents and Tax Compliance Officers are now able to email directly with the taxpayer and/or elected authorized tax professional without including or exchanging sensitive personal information. For example, local IRS Agents are willing to email planned contact, interview appointment dates and also issue initial and or subsequent Information Document Requests (IDR’s) via secure e-fax numbers as provided by the Taxpayer.
The IRS summarizes an IRS audit as “… a review/examination of an organization’s or individual’s accounts and financial information to ensure information (income) is reported correctly according to the tax laws and to verify reported amount of tax (paid) is correct.”
So, what now? The most common question(s) I get from Taxpayers are why? And what am I being audit for? So, because of that, let’s outline and itemize the most common questions and I’ll give my (qualified) opinion on the Top 5 to start.
1. Why am I being audited?
The IRS informs Taxpayers, “Selection for an audit does not always suggest there’s a problem.” I call this fuey. The IRS has sophisticated diagnostics, analytics internally and is not going to send out audit notices, audits without the very likelihood that some income, or expense, item is reported incorrectly. So not “always” but “very likely” something is wrong in my experience while working for the IRS for almost 9 years. It’s not likely the IRS would send notice without known likely issues.
The IRS still contends individual business audits are “random selection” and “computer screening”; however, now with such sophisticated diagnostics available beyond the normalized “DIF” scores assigned to each tax return it’s not likely random any further.
2. How will I be notified by the IRS?
Should you ever be selected for an IRS audit you will be directly contacted by mail at your most current address. In general, the IRS conducts audits by mail or by in person interview interactions with local IRS Agents assigned to your assigned case. Local IRS Agents have discretion to expand to prior and or subsequent years and related tax returns if and when adjustments eliciting additional income, tax due will affect any and all related tax return years.
3. What happens during an IRS audit?
Depending on the type of audit, either 1) correspondence audit – by mail, or 2) in person audit – by in person interview and in person appointments, the Taxpayer will generally be required to supply books and records for evaluation by the assigned IRS Agent and also participate in an in person interview if not authorized tax representative is elected. At the very least, if for no other reason than to utilize a tax professional for the interview process, it is more than advantageous to the Taxpayer to utilize a competent, trusted tax professional within the interview process. Of note, if more problems or discrepancies within the records are found, there will more than likely be more than one in person interview for at that point it would be prudent for the Taxpayer to elect representation and discuss issues further them in detail.
4. Do I need a tax attorney? Or another tax professional?
In general, the answer is no. You do not necessarily need a tax attorney or CPA; however, as we’ve outlined in the prior edition, if you have a CPA and that CPA prepared your tax return selected for audit it would be considerably recommended that the Taxpayer immediately contact their CPA, notify them of the letter and provide a copy of the audit notice imminently so that the CPA can better understand the correspondence, audit notice received and confer with the Taxpayer competently.
In my experience, whether you can afford it or not, the CPA will absolutely help in any way possible if and when an IRS audit notice is received for a tax return the CPA prepared and filed for the Taxpayer. If not, then please feel free to contact us directly at Strothman and Company and we would be more than willing to consult and advise, if needed.
5. Lastly, how long does an IRS Audit take?
The IRS generally outlines “the length varies depending on the type of audit…” I’ve found this to be generally true. In most audits, if no related taxes years or there isn’t any suspected fraud or purposeful actions found to evade tax then an IRS audit generally last two-to-three months depending on the complexity of the issues involved and the number of tax years involved. Of note, if tax returns are filed timely, the IRS can go back up to three prior tax years.
I hope anyone reading this never has to go through an IRS audit which, in my experience, tends to happen at the most un-opportune and lowest-of-lowest times in the taxpayers lives, unfortunately; however, as we have outlined here it is only best that if contacted by the IRS for audit or otherwise you should fully understand your rights.
Moreover, the impressions I get with the upcoming years is that more and more IRS audits in the form or tax deficiency letters and other correspondence will be more substantial due to the financially unfortunate tax year. Therefore, more and more Taxpayers will be receiving IRS letters, notices and should be fully aware of their rights.
For a more detailed explanation I encourage you to review the Taxpayer Bill of Rights to further explore your rights as a Taxpayer. You can also better understand the most common audit questions here.
Moreover, if you’ve been contacted by the IRS and your CPA or return preparer or you self-prepared your tax return(s) and do not have a good understanding of what has raised the IRS’s suspicion(s) of your tax return please feel free to call us directly at Strothman and Company, ask for myself and we will be more than willing to confer or assist in any way I or the company can no matter if you are a current client or not.
Please call if you need help!
Dustin Wells, EA
Strothman and Co.