by Jay Freeborne , Enrolled Agent
April 22, 2013

Did you receive a letter from the IRS indicating that they want to meet with you for an examination or audit? Don't despair. Here's the basic structure of an IRS audit...

Step One: Introductory Letter and Request for a Meeting

Your audit begins with 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 point, you can get representation by calling us 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 give you a deadline for providing additional information like a mileage log or three years of bank statements. The list of information they're needing in the audit is often made on IRS Information Document Request Form 4564.

Step Three: Changes are Indicated via Form 4549 and You Have 30 Days to Respond

After the first two exchanges of information or more, the IRS will have a pretty good idea what their adjustments are and use Form 4549 to detail these changes. They'll show you what items they increased or reduced, like gross receipts to your business or expenses. You'll also see how much in added liability you have including penalties and interest. While this letter might seem daunting, you'll be able to respond with more information to defend the items within 30 days of the issuance of the letter, and you'll have a better idea of what to defend because Form 4549 will have documented what you need to win. Many people contact us when they've received this letter. We can still get involved at this point, but we have to move quickly!

Step Four: Audit Closed, IRS 90 Day Letter Issued

Once all the deadlines to provide the IRS info to defend your audit have passed, the "90 day letter" is issued. At that time, you have three choices (with very few exceptions):

  1. You petition the IRS tax court within 90 days.
  2. You prepare an Audit Reconsideration.
  3. You make an Offer in Compromise.

Tax Court is a tricky and expensive proposition, but if you have really unique things that were disallowed this may be the proper venue to get your audit reconsidered. In most cases, however, Tax Court is not the proper place to get it resolved and that's why we often prescribe an audit reconsideration to resolve a client's tax audits after the 90 days have passed.

You can do an audit reconsideration with no deadline. But let's be perfectly clear: doing an audit reconsideration requires that you have some kind of paper trail and supporting documents that you did not have or they did not receive in the original audit. Otherwise, you might be wasting precious dollars.

Lastly, you can deal with your new IRS balance in IRS collections by making an Offer in Compromise, Installment Agreement or Currently Not Collectible Status. We think it's worth noting that two of the last four audits have been on tax returns that were completed with Turbo Tax. If you do use that highly customer-friendly self-tax preparation service, you still run the risk of being audited!

We're a 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 and we'll contact you ASAP.

Posted In
Registered members of the National Association of Enrolled Agents.

Call and talk with a tax expert for free:
(888) 282-4697

or email us now