• Explains how to proceed when you receive an audit notice.
• Outlines your audit rights.
• Lists possible solutions for paying late taxes.
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You should respond to an IRS notice when you first receive it.
After reviewing your tax return you can either decide to pay the amount they are demanding if you think the error is yours, or appeal the IRS's decision if you think the mistake lies with them.
You should appeal their actions as soon as you can. However, if you do wait to appeal until the notice of intent to levy, your appeal will stop all collection activity until your appeal is heard.
Bottom line: The best form of action is a fast one.
Remember: You are not the only one that is capable of making errors on your tax return. The IRS is also fallible. If you receive an audit and doubt there were any miscalculations on your part you should review your tax return carefully. Look for these common mistakes made by the IRS:
• Misapplication of your tax payments
• Mistook your filing date as being late
• Entered the wrong social security number
• Entered the wrong income
• Reported your tax-exempt income as taxable income
• Counted your income twice
• Received and recorded an incorrect 1099
Appealing an audit
Once an audit is complete, the IRS will send you Form 4549-A, "Income Tax Examination Changes" and Form 1902-B, "Report of Individual Tax Examination Charges".
You have 30 days after receiving these notices to either agree to the adjustments the IRS has made to your tax return or to submit further evidence showing your tax return was correctly prepared.
If, for some reason, you miss your audit, an IRS agent can make changes based upon what is considered reasonable and fair. You can respond to this type of notice, by calling the agent within 30 days and requesting to reschedule your audit appointment.
Appealing a lien or levy
Within the 30 day limit after receiving a lien or levy notice, you can file an appeal. The IRS can not proceed with any levying action until you appeal has been heard. At your hearing you will need to state valid reasons why the IRS's actions are not justified.
Notice of Deficiency
This is the final notice set by the IRS by certified mail. Not until this notice is issued can the IRS legally enforce the collection of additional tax. These are not sent out if the error on your tax return was a simple math error.
A notice f deficiency is only sent out for the collection of taxes due to the IRS adjusting your original return by reducing or disallowing credits or deductions.
Your rights
1.You are not required to attend your audit hearing if you have an EA, CPA, or attorney to represent you.
2. If you choose to represent yourself but realize mid-audit you have no idea what is being said, you can postpone the audit in order to seek or professional advice.
3. You are considered guilty until proven innocent during an audit. You need to provide the evidence.
4. The IRS cannot demand that you complete Form 4822 "Statement of Annual Estimated Personal and Family Expenses" unless a routine inquiry reveals substantial evidence of unreported income
5. Being audited for the same reasons for consecutive years is generally against the IRS's policies. You should inform the agent if this situation arises. You may need to send in proof of the audit and the IRS's acceptance of your unchanged return.
6. The IRS has three years to assess your tax return for an audit.
Your options
The worst action you can take if you believe you are unable to pay the taxes you owe come April 15th is to ignore the IRS. The IRS is persistent and only gets more so with every notice they send but to which you fail to respond.
Here are other options that may be available to you:
• Request a payment extension.
• Offer to make a partial payment.
• Pay your taxes in installments.
To proceed with one of these options either fill out Form 656 - Offer in Compromise, attach Form 9465 - Installment Agreement Request, respectively.
You should hear back from the IRS either granting or refusing your request.
Related IRS publications
You can get more information about responding to an audit directly from the IRS, in the form of Publication 556.
For more information on your rights as a taxpayer, consult Publication 1.
Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)
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