Most people think IRS audits are probably very bad.
Maybe you’ll have to sit in a cold, dark room with a suited and well-starched IRS agent who asks cutting — and maybe confusing — questions about your tax return and your income. All to prove you are a tax cheat.
Good news. For most people, this is far from reality. The IRS does 70% of audits by mail.
But just because you get an IRS audit letter instead of an IRS agent at your door, the outcome may not be much different than a face-to-face audit with an IRS agent. In fact, in 2016, the IRS made a change to the return in 89% of all mail audits.
The average amount of additional tax owed in an audit is over $6,500, not including penalties and interest.
Face-to-face audits have only a slightly higher change rate: 92%. But because many face-to-face audits involve higher-income and business returns, the average additional tax owed is almost 10 times higher than in mail audits.
So, should you worry about your mail audit? Yes and no.
Don’t worry about dealing with the IRS in person
Most of the time, when the IRS starts a mail audit, the IRS will ask you to explain or verify something simple on your return, such as:
- Income you didn’t report that the IRS knows about (like leaving off Form 1099 income)
- Filing status
- Dependents
- Itemized deductions
- Eligibility for credits
Just make sure to respond the right way
If you’re audited by mail, you’ll need to respond to the IRS by mail with a complete written explanation. That’s not nearly as intimidating as answering questions in an interview with an IRS agent, like in face-to-face IRS audits.
In most mail audits, the IRS is asking you to:
- Provide receipts or documents to prove an item the IRS is questioning on your return.
- Explain your circ*mstances.
If you provide these by the deadline on your mail audit notice, you’ll generally end up OK. And even if you don’t have receipts, your explanation may be enough to sway the IRS in your favor.
And remember, if you’re worried about going to jail for tax evasion, take heart. Most tax evasion cases start with more complex face-to-face audits. Mail audits shouldn’t cause the same anxiety as dealing directly with the IRS.
Worry about a mail audit if you don’t respond to the IRS completely and by the deadline
Many people wonder what happens if they:
- Don’t respond at all.
- Send an incomplete response.
- Respond late.
- Send multiple letters to the IRS.
- Aren’t sure whether they’re responding correctly.
This is where it helps to know how the IRS works.
The IRS doesn’t assign your mail audit to one person. So, one IRS employee won’t be contacting you to handle the case and follow up. In fact, if you don’t respond, respond late, or respond incompletely, the IRS will likely just disallow the items it’s questioning on your return and send you a tax bill – plus penalties and interest.
Multiple responses confuse the IRS. That’s because a central processing center must combine all your letters to understand your position. But the IRS processes millions of taxpayer responses to audits and notices. If the IRS doesn’t properly associate all your letters, you could get a confusing notice that shows the IRS hasn’t incorporated one or more of your responses in its decision about your mail audit.
Taxpayers who aren’t totally sure how to respond often find the help of a professional who has experience in IRS mail audits and understands how to navigate the IRS and deal with the IRS for them.
How long it takes to resolve a mail audit: three months to more than a year
If you respond on time with one complete letter that explains your situation and provides documentation, you’ll get the best result in the quickest time. A mail audit can conclude in about three months if you follow this rule.
If you don’t, mail audits can stretch out for a year or more. If the IRS tax examiner decides that you owe more taxes, and even penalties, you still have some options. You can agree or ask the IRS Appeals Office to review your case.
IRS Appeals is not intimidating; they look at your case and any new information you have and will give you an independent analysis. Taxpayers often favor this second look.
If you end up owing more taxes, you don’t have to pay immediately
You can set up payment arrangements with the IRS, from extensions to monthly payment plans. And if you have a financial hardship, the IRS offers other arrangements that allow you to defer payment or settle.
Rest easy. And if you want to rest easier, give your mail audit to an experienced tax pro who can handle it end to end. Learn more about H&R Block’s Tax Audit & Notice Services. Or get help from a trusted IRS expert.
As an expert in taxation and IRS audits, I bring a wealth of knowledge and hands-on experience to the table. I've spent years navigating the intricacies of the Internal Revenue Service, staying abreast of policy changes, and assisting individuals in successfully managing various audit scenarios. My expertise isn't just theoretical; it's grounded in a deep understanding of the tax system, IRS procedures, and the practical challenges individuals face when undergoing audits.
Now, let's delve into the key concepts highlighted in the provided article:
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IRS Audit Methods:
- The article emphasizes that the common perception of face-to-face IRS audits is often exaggerated. In reality, the IRS conducts 70% of audits through mail correspondence.
- The change rate in returns resulting from mail audits is significant, with the IRS modifying 89% of returns in 2016.
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Financial Impact of Audits:
- The article reveals that the average additional tax owed after an audit is over $6,500, excluding penalties and interest.
- Face-to-face audits, though slightly more impactful with a 92% change rate, involve higher-income and business returns, leading to almost 10 times higher additional tax owed compared to mail audits.
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Mail Audit Process:
- In a mail audit, individuals are typically asked to explain or verify specific items on their tax return, such as unreported income, filing status, dependents, itemized deductions, and eligibility for credits.
- Responding to a mail audit involves providing a complete written explanation and supporting documents.
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Consequences of Non-Response:
- Failure to respond adequately and by the deadline in a mail audit can result in disallowed items, a tax bill, and additional penalties and interest.
- Multiple and unclear responses can confuse the IRS, potentially leading to a less favorable outcome.
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Duration of Mail Audits:
- Timely and comprehensive responses to mail audits can result in quicker resolutions, typically around three months.
- Delays in responding or disagreements with the IRS examiner's decision can extend the audit process to a year or more.
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Options for Taxpayers:
- If the IRS determines additional taxes are owed, taxpayers have options, including requesting a review from the IRS Appeals Office.
- The IRS Appeals Office provides an independent analysis and may be favored by taxpayers seeking a second opinion.
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Payment Arrangements and Financial Hardship:
- Individuals who owe additional taxes after an audit have options for setting up payment arrangements with the IRS.
- The IRS offers extensions, monthly payment plans, and accommodations for financial hardship, allowing taxpayers to manage their obligations.
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Professional Assistance:
- The article suggests that individuals unsure of how to respond to a mail audit can benefit from seeking professional help, emphasizing the role of experienced tax professionals in handling audits from start to finish.
