Why did the IRS send me an audit notice on my federal income tax and how should I respond?
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UPDATED: Jul 16, 2021
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Receiving an audit notice from the IRS can be stressful, but it is important to remain calm and communicate with the agent assigned to your case.
Taxpayers are selected for audit randomly through a computer program which searches for certain discrepancies. For example, if you declared income of $50,000 but claimed to make $25,000 in charitable deductions, that is a red flag for the audit computer program because it is highly unlikely that a taxpayer at that income level to donate 50% of their income. In other situations, there may not be any errors on the tax return and the return was randomly selected for audit by the computer program.
It is also common for taxpayers to receive an audit notice if an employer they worked for is also being audited. Sometimes, employers make errors in reporting an incorrect amount of income to the IRS which can lead to an audit because there is a discrepancy between the amount of income the employer is reporting on the W-2 and what the employee declared on the tax return.
Steps to Take When You Receive an IRS Audit Notice
Regardless of the reasons for being selected for an audit, ignoring calls and letters from the IRS will not help you and may even lead to increased penalties. First, call the agent assigned to your case, and arrange a meeting. The agent’s name and contact information should be listed on the audit notice. Responding to requests from the agents promptly will not only help expedite the audit process, but also demonstrate that you are taking the audit seriously and are eager to cooperate.
If the audit is for a tax return that was filed a few years ago and you are having a hard time tracking down the requested documents, be sure to stay in touch with your agent and explain steps you are taking to obtain the necessary documentation. Being polite and courteous to the agent is helpful, but if you find yourself in a situation where the agent is unprofessional and acting inappropriately, be sure to contact a supervisor and request to be reassigned to a different agent.
Second, start getting your records and tax returns together because it is your responsibility to prove that the income declared and deductions claimed are correct. Failing to properly substantiate deductions or establish valid income will cause additional taxes to be assessed against you. Remember to include tax identification number and contact information on all documents and written correspondence that you send to the IRS.
Consulting a tax attorney will help you understand what to expect in your specific situation and the best way to prove that your tax return is valid.