Receiving an IRS certified letter can be a huge shock. You walk out to your mailbox one day, flip through junk mail and bank statements, and then you see it. A large, scary-looking letter from the Internal Revenue Service. Of most concern is an IRS audit letter, but a certified letter may be a CP2000, an automated adjustment notice that tells you to pay taxes on income that may have been omitted due to error. In either case, you don’t have to simply sit back and accept their demands.
Along with your IRS certified letter, you probably received a copy of the IRS’s document called The Taxpayer’s Bill of Rights. In it, you’ll find one privilege in particular that can be especially important: the right to representation. Not only does this mean you can fight for yourself, but it also allows you to retain a tax attorney to work alongside you and help you deal with the IRS.
Once you have received your letter, you are required to respond or you could face penalties. You’ll have several weeks to prepare the necessary documents and gather evidence to argue your case. Your tax attorney, should you choose to retain one, can provide you with an exact list of the documents you’ll need, but usually these include your tax return(s) for the relevant year(s) and supporting documents as well as any other documents that the IRS specifically requests. Whatever you need, be sure to only provide copies of the documents to the IRS, not the originals, as you may need them in the future, and you don’t want to risk the IRS losing them.
Types of Audits
How you’ll provide these documents and interact with the IRS depends on what kind of audit it is. The three types of audits are:
- A mail audit, in which correspondence is conducted via US mail. Usually, you will never meet the auditor in this scenario and may not even talk to them on the phone. In this case, it may be helpful to have a tax attorney go through the documents sent to you by the IRS and then draft replies.
- An interview audit, in which you must go to your local IRS office with all of your documentation in hand and argue your case. Since you are on the IRS’s home turf, it can be extremely intimidating, and it may be fitting to consult with your tax lawyer to help translate the dense tax language and ensure you receive fair treatment.
- A field audit, in which the IRS auditor comes to your home or business. These are mostly reserved for companies and home businesses. It is often recommended that the meetings occur outside of your home. In fact, it can even be helpful to conduct them at the office of your tax attorney.
Whether you’re subject to a mail, field, or interview audit, you can expect some back and forth between your side and the IRS. Once you provide the documentation, they may request more details on a particular part. If you dispute the amount, they may come back with a different number based on the documents you provide. Throughout the correspondence of your audit defense, be sure to maintain detailed records, including any phone conversations. Eventually, you may be able to prove that you do not owe any money, or you may be able to demonstrate that the amount is lower than they had assessed.
Leonard Williams is a tax and finance writer. Follow him at @LeonardW88 for more tips and advice.
- Seven Great Ways to Get an IRS Audit. (2008taxes.org)
What to Expect after Receiving an IRS Certified Letter by Steve