The IRS Audit Process: From the Initial Meeting to the Form 4549 Letter to the 90 Day letter - How It's Done
Did you receive a letter from the IRS indicating that they want to meet with you for an examination or audit? Don't despair. In this blog post we'll explain the basic structure of an IRS audit.
Step One: Introductory Letter and Request for a Meeting
Your IRS audit begins by the IRS sending you a letter indicating an appointment time, location and a request to bring a few items. It also indicates the Tax years: 2013, 2014, for example, that are under investigation. At this time - you can get representation by calling us at 1-888-282-4697 or get prepared to go the meeting yourself. (If you are not having a live audit, you might also receive the form CP2000 indicating changes on your return and an opportunity - usually 30 days to rebut them via mail/fax).
Step Two: Interaction with IRS examiner and Request for Info and/or Another Meeting
After you or your representative has met with the IRS examiner - the IRS will be looking for more information - a mileage log or three years of bank statements, for example. They will set you up in a deadline to provide that info. The list of information they're needing in the audit is often made on IRS Information Document Request Form 4564.
Step Three: Form 4549 or the IRS 30 day letter is sent to you indicating changes.
After the first two exchanges of information or more, the IRS will have a pretty good idea what their adjustments are. They will let you know the changes with Form 4549. They will show you what items they increased: Gross Receipts to your business for example or expenses - they reduced. You will also see how much in added liability you have including penalties/interest. While this letter might seem daunting, you will be able to respond with more information to defend the items within 30 days of the issuance of the letter AND you will have a better idea of what to defend because the form 4549 will have documented what you need to win. Many people contact Washington Tax Services when they have received this letter and the fact is: we can still get involved...but we have to move quickly!
Step Four: The Audit is closed and the IRS 90 day letter is issued (90 days to petition to Tax Court)
Once all of the deadlines to provide the IRS info to defend your audit have passed the "90 day letter" is issued. At that time, you have two choices really (with very few exceptions):
1. Petition Tax Court -- Petition the IRS tax court within 90 days
2. Prepare an Audit Reconsideration -- You can do an "audit reconsideration" with really no deadline. Tax Court is a tricky and expensive proposition -- but if you have really unique things that were disallowed - perhaps this is the proper venue to get your audit reconsidered. BUT in most cases Tax Court is NOT the proper place to get it resolved - and that is why Washington Tax often prescribes an "audit reconsideration" to resolve client's tax audits after the 90 days have passed.
But let's be perfectly clear: doing an audit reconsideration requires that you have some kind of paper trail and supporting docs that you DID NOT HAVE or THEY DID NOT RECEIVE in the original audit -- otherwise you might be wasting precious dollars.
3. Deal with your New IRS balance in IRS collections - by making an Offer in Compromise, Installment Agreement or Currently Not Collectible Status.
We will also mention in this audit post - that two of the last four audits we have taken on - have been on tax returns that were done on Turbo Tax. So if you do use that highly customer friendly self-tax preparation site -- you still run the risk of being audited!
Washington Tax Services is the rare staff of tax professionals that handles both IRS collection cases AND audits. Getting audited by the IRS? Call us at 1-888-282-4697 or EMAIL us a description of your audit situation HERE and we will contact you by email/phone.