One out of every 220 people in the US were audited last year. With the Federal government’s increasing budget deficit, the IRS is expected to ramp up the number of audits we see in the coming months and years to come.
So what do you do if you receive an audit letter in the mail?
The first thing to do is understand what kind of notice you’re dealing with – Is it a Live Audit or a Correspondence Audit? When you receive an audit letter from the IRS check who sent it.
If the letter is sent from a specific individual (usually an IRS agent) listing a local/regional phone number that would be considered a Live Audit. Alternatively, a Correspondence Audit is computer generated and listed an 800 number with no individual as a point of contact at the IRS. A Correspondence Audit letter will also have a CP2000 or CP2501 code indicated usually on the first page.
The typical Live Audit appears in cases where an individual is self-employed and reporting a loss of revenue for that year. The typical Correspondence Audit is usually when an individual erroneously misreports income (401k withdrawal, property sales, stock sales, etc.).
Once you determine what type of audit your facing, now is the time to act. Contacting a tax representation firm, such as WATAX, is a good first step. With over 30 years of experience dealing with audits, we’ve represented thousands of clients in resolving audits.
Contacting the IRS and any assigned agents, defining the specifics of the audit, setting deadlines, and gathering your audit defense info are what follows. Once in place - enacting an appeal, an audit reconsideration, and/or defending your case in tax court are the likely scenarios for resolution. With the audit is closed, if there is any remaining liability a settlement needs to be arranged.