22 May Uh-Oh, Am I in Trouble? What to Do If You Received an IRS Audit Letter
In 2019, the audit rate declined to below .50%. People, however, are still concerned with getting audited by the IRS. People are concerned if they receive an IRS audit letter.
If you do receive this letter, you might be wonder what will happen. You might wonder if you should be concerned if you have to pay more taxes. Don’t panic!
Here’s a few first steps as a guide on what to do if the IRS decides to audit your finances.
What Is an IRS Tax Letter?
An IRS tax letter identifies your name, your taxpayer ID, employee ID number, and contact information.
The letter will tell you how long your meeting will last and what documents you need to provide to the IRS. Depending on how you filed, the IRS may request that your wife be involved in the audit process.
You can also consult with a legal tax attorney who can be present with you during the meeting.
The IRS letter should show a tax report and it’s in your best interest to schedule a meeting as soon as you receive the letter.
The end of the letter will have an examination officer’s signature.
What Should I Do If I Receive A Letter?
After receiving an audit letter, immediately consult your tax professional in order to respond as quickly as possible to the letter and schedule a meeting. A qualified tax professional can assist in gathering information and answering complex questions about your specific situation.
You have 30 days to respond to the letter without a penalty. If you cannot submit the information within that time, you may be granted a 30-day extension.
If you do write an audit letter, you should include your tax ID number, your contact information, your name, and your business ID. Also, you should address the examination officer by name.
You should also address each issue that the IRS included in their letter. Include your findings in the letter, which the IRS requested.
In addition, you should also include electronic documents. You should keep your tax records for at least three years in case you do get audited.
Finally, you should set up a time to discuss your findings with the appointed IRS officer.
To feel more secure about the letter and what is requested, you can hire a CPA to assist you. A certified public accountant can help you with the tax process and ensure that everything is done correctly. Having a qualified CPA available at the start can enable more positive results to be possible.
How Long Is the Audit Process?
The typical audit will last three months. But it also varies from case to case. Your audit will depend on how much you claimed and what evidence the IRS needs in the case.
Your current tax backlog can delay the IRS audit process.
The length of an IRS audit also depends on the type of audit. The IRS does compliance, construction, financial, investigational, operational, and tax audits.
You can also appeal your audit because you disagree with the results the IRS brought forth. When you appeal, the IRS needs time to complete this process and the length of the audit is much longer.
If you’re unsure of what you should do if you are audited, you can schedule a free consultation call to make sure everything is in order.
Why Does the IRS Send Tax Letters?
The IRS sends tax letters because there is a gap between what is owed to the government and what the government actually received. They will audit businesses if they believe that the business owes more than what they paid in taxes.
The IRS looks at red flags in a tax return. If they see enough red flags, it merits an audit. Here are some of the red flags that the IRS looks for.
Math mistakes can cause red flags. If you input wrong numbers such as not putting a zero, it can cause the IRS to look further into your taxes.
The IRS also looks at individuals who fail to report income. If you fail to report income like freelance work, you IRS will find out. The freelance work you didn’t report was reported by the business who paid you.
The IRS also looks at too many donations to charity. Giving to charity means you are eligible for deductions. But don’t claim false donations.
You need proper documentation to prove what you contributed, which is what the IRS will need if you claimed deductions from charities.
You could also raise IRS red flags if you claim too many business deductions. The same rule concern applies if you claim a home office deduction.
If you claim too many losses on a Schedule C, you can raise red flags. If you have your own business, you don’t want to make the mistakes of filing personal expenses as business expenses.
What Are Your Rights?
If you receive an IRS letter, you should know your rights.
You have the right to professional and courteous treatment from IRS employees. You also have the right to privacy and confidential tax matters.
You also have a right to know why the IRS is investigating your taxes. You also have a right to representation if you are audited.
Lastly, you have a right to appeal to disagreements.
You should know your rights because you should know what action to take if you are audited. You need to be prepared to act swiftly in case you are audited.
Should You Be Worried?
Don’t worry! If you are audited, you should follow this guide or talk to an accountant consultant. The most important thing to do is to follow the IRS audit letter instructions.
The IRS audits businesses for a lot of reasons. Some of the reasons are because you filed incorrectly. You shouldn’t worry if you filed correctly and you respond accordingly.
To alleviate your worry and feel more confident in your audit response, visit our website and check out our IRS and tax resolution services. Contact us directly to schedule a private meeting and discuss your specific situation.