IRS Tax Notice, Tax Return Audit, and Audit Appeals
According to the IRS 2018 Data Book, of the 196 millions tax returns filed for Tax Year 2017, the IRS examined almost 0.5% of all Tax Returns (or about 1 million returns) in Fiscal Year 2018. Of this approximately 1 million returns about 230,000 returns received a field audit notice and almost 770,000 a correspondence tax audit notice from the IRS. In comparison, about 0.6% of all individual income tax returns and 0.9% of all corporate income tax returns got audited in one form or another. Overall, the numbers of Tax Returns that were audited between Fiscal Tax Years 2013-2018 decreased from over 1.5 million (2013) to almost 1 million (2018).
A government report by the Treasury Inspector General for Tax Administration released in early 2019 states that the private collection agencies (PCAs) who contracted with the IRS to collect long-overdue tax debts were able to garner about 2% of the income taxes owed on the more than 700,000 taxpayer accounts assigned to them since 2017. As of September 2018, the PCAs collected around $88.8 million of the tax balance owed on delinquent taxpayer accounts. Plus they set up more than 21,000 payment arrangements with delinquent taxpayers, but the taxpayers later failed to make payments on more than half of them.
The information below will help you prepare for an IRS tax audit and guide you through the Audit Appeal and Audit Reconsideration process. You will also find out how the IRS contacts taxpayers so you will know whether you're communicating with an IRS agent or a scammer.
Receiving an IRS Notice
What To Do
Preparing for an IRS Audit
Receiving an IRS Notice
Generally you will receive an IRS notice for one or more of the following reasons:
- The IRS changed information on your tax return
- You owe taxes
- The IRS has a question about your tax return
- The IRS is requesting additional information from you
- You are due a smaller or larger tax refund
- The IRS needs to verify your identity
- The IRS is informing you about delays in processing your tax return
What To Do
If you received an IRS tax notice, you should do the following tasks:
- Stay calm. Many notices the IRS sends can be dealt with simply and painlessly.
- Respond to the notice on time. If the IRS requires you to reply to the notice, be sure to respond on time and completely to minimize additional penalties and interest fees.
- Review the notice carefully. If the notice described a change or correction in your accepted tax return, you should review the notice and compare it with your original return. You could also be asked to send additional tax information or more money to the IRS.
- Send any agreement reply forms or payments to the IRS if it's instructed in the notice. If you agree to the notice, send the reply form included in the noticed. You should also make notes about the correction on your tax return copy and keep it for your records.
- Mail a letter to the IRS if you disagree with the notice. If you disagree with the correction made by the IRS, be sure to respond as requested. Explain why you don't agree and keep records of your correspondence with the IRS (include documents and information you want the IRS to consider, along with the bottom tear-off portion of the original notice). Mail your tax information to the IRS address shown in the upper left-hand corner and allow at least 30 days for a response from the IRS.
- Call the phone number on the top of the notice if you have questions. When you call, have a copy of your tax return and the notice on hand and write down the ID of the IRS agent to whom you speak.
- Keep copies of your tax returns and IRS correspondence. It's important to keep tax records in case of future IRS audits.
- Avoid tax scams. The IRS will never initially call or text you about your tax return. You will usually receive a letter from the IRS first.
If you are already in the midst of an audit, absolute compliance is the best way to help your situation. Making things easier for the auditor shows that you have nothing to hide and that you want to get the process over with as soon as possible.
If you are selected for an audit and the auditor determines an increase in your tax liability, you are entitled to an audit appeal. The IRS will send you a letter that explains the adjustments made to your tax return. The letter will also inform you of your right to meet with an Appeals officer and how to contact the officer. You must bring supporting documentation to your appeals conference with an Appeals officer.
What You Should NOT Do
You should not do the following in response to an IRS audit notice:
- Do not ignore the IRS notice. Many IRS letters have specific information on a tax return and includes instructions on how to respond if necessary.
- Do not panic. The IRS is only sending the notice to inform you about a change in your return or is requesting more information from you.
- Do not reply unless the you're requested to do so. However, if you owe taxes, you should usually reply with a tax payment.
If the IRS calls you on the phone or emails you asking for information and/or demanding payment, it is most likely a tax scam. The IRS only sends notices and letters via mail. They do not contact taxpayers via email, social media, or phone asking for personal or financial information, or demanding tax payments, or threaten. If you receive any of these fake notices, report them directly to the IRS.
Audit Assistance from efile.com
Efile.com offers free audit assistance for any tax returns you prepare and efiled on efile.com. Please contact efile.com and provide details about the audit so we can help you. On your personal, secure support page, you can attach a copy of the IRS and/or state notice you received so we can help you understand what the notice is requesting from you.
If you need a copy of your tax return to prepare for an audit, sign into your efile.com account, click on "My Account" on the upper right corner, and click the appropriate link to download your return in a .PDF format.
If you have purchased the Protection Plus Audit Assistance service on efile.com during the preparation of your tax return, you will receive the following services for three years after the filing deadline of the tax year you efiled your return, including, but not limited to:
- Evaluation of all related IRS correspondence
- Professional document review, organization, and consultation
- Drafting of letters and other necessary correspondence
- Assistance with telephone communication with an IRS agent for explanations and discussions during the audit process
- Assistance with all forms (including Schedules A, C, and E)
- Assistance with denied credits (Earned Income Tax Credit, Child and Dependent Care Credit, Education Credits, Child Tax Credit, Additional Child Tax Credit, Adoption Credit, Credit for the Elderly or Disabled, Savers Credit)
If you purchased this tax audit assistance plan, please call Tax Protection Plus at 866-942-8348 for further assistance or contact efile.com with your tax audit questions.
If you did not efile your return on efile.com, please get a copy of your tax return in preparation of a tax audit.
Preparing for an IRS Audit
There are many preventative steps that an individual can take to be prepared for a potential tax audit. The most important thing to do to prepare for a potential audit is to keep good records. Good records allow you to easily organize and accurately calculate your tax return. Good records also supply the physical proof for all and any unusual deductions. Don’t forget to print and/or save a PDF copy of your tax return for your tax records.
On efile.com, you can print your completed and IRS accepted tax return(s) at anytime. Here's how:
- Login to your efile.com account.
- Click "My Account" in the upper right. Under "My Returns", you will see a link to each of the returns you have prepared with us. Click the appropriate link to download your return in a .PDF format. You will be able to print the return by clicking on the print button on the top menu of the page.
If you efiled your previous year's tax return on efile.com, you will be able to import this data into your new tax return. For example, during the current tax season you will be able to import the previous year's tax return data into your new tax return. It is in your personal interest and it is very helpful to have your previous year's return available when you start to prepare your tax return. It might also be helpful to have copies of your tax returns from earlier years handy in case there are any questions or if you need to provide documentation for schools, banks, etc.
If you did not efile your tax return(s) on efile.com, you can get a copy of your tax returns in preparation of a tax audit from the IRS and/or state tax agency.
How the IRS Contacts Taxpayers
Read these facts on how the IRS contacts taxpayers so you do not become an identity theft victim of a scammer pretending to be an IRS agent:
- They usually does not initiate contact with taxpayers by phone or email. They will not request your personal information or demand tax payments via these communication methods.
- They do not contact taxpayers via social media or send text messages.
- The IRS first contacts a taxpayer via a letter delivered by the U.S. Postal Service. Scammers usually send fake documents via regular mail and sometimes claim they already notified the taxpayer by U.S. mail.
- IRS employees may first call or visit a taxpayer based on the taxpayer's situation. The taxpayer may receive a letter or written notice from the IRS before the call or visit.
- IRS agents or tax compliance officers may call a taxpayer or the taxpayer's CPA/tax professional after the agent or officer mails a notice to confirm an appointment or to discuss details about a scheduled audit.
- If taxpayers have outstanding and inactive tax debts, private debt collectors may call them. However, this is only after the taxpayers and their representatives received written notices beforehand.
- IRS officers and agents routinely make unannounced visits to taxpayers' homes to discuss delinquent tax returns and/or taxes owed. When agents and officers request payments from taxpayers, they will only request to have them sent to the U.S. Treasury.
- Real IRS representatives have a pocket commission and a Personal Identity Verification Credential, so taxpayers should always ask for these official documents if someone claims they are from the IRS.