What Does an IRS Audit Letter Look Like?

The Internal Revenue Service or IRS audits approximately one million people each year in the United States. Because the auditors select filings randomly, keeping accurate records will not ensure they do not choose your tax filings for an examination. Receiving the letter and learning you will undergo an audit is always stressful for filers. It can overwhelm even the most diligent bookkeepers. While they randomly select many individuals, others may receive the notice because of errors or discrepancies.

After receiving a notification of an audit from the IRS, it's in your best interest to open it quickly and take action. An irs audit letter will usually come from the Internal Revenue Service but may also come from the Department of Treasury. Finally, the notice will include the name of the IRS agent completing the examination with their signature.

Does the IRS Send Letters Using Certified Mail?

The IRS audit letter will arrive via certified mail and list your full name, taxpayer ID or social security number, the form number, and the Information they are reviewing. It will also provide the IRS agent's contact information for more information or questions on the process or specific case. It is essential to remember that an IRS auditor will never reach out by phone or email or demand payment immediately.

How Will I Know the IRS is Auditing Me?

According to the Internal Revenue Service website, they will notify you by certified mail if they select you for an audit. They will send the notification to the individual or business's full name and address they have on record. The letter, in most cases, "Notice of Audit and Examination Scheduled," will explain the reason for the review.

The notice will clearly state the reasons for a review and audit, and the year the taxpayer filed the return. It will also provide instructions, including what additional information, clarification, or documentation they need to complete the process. Finally, the notification will give a deadline for responding to the IRS's request. Other letters the IRS may send during the audit process include:

THE GENERAL 30 DAY AUDIT NOTICE

What Time of Year Does the IRS Mail Audit Letters?

The IRS typically issues audit letters within one year of filing. However, according to the statute of limitations, they have up to three years after the taxpayer files taxes in most cases. If the auditor finds items such as excessive underestimates of income, they may add three years to the statute's deadline for the audit.

Filers most commonly receive letters from the IRS notifying them of the examination in the fall or winter months of the previous tax filing year. Yet, the auditors can mail the notifications throughout the year. There are cases for which the statute of limitations does not apply, and they include:

Fraudulent tax returns

Failure to file a tax return

Intentionally evading the payment of taxes

There is no deadline for auditing tax returns that involve tax fraud or evasion. They are federal crimes, and if the IRS determines the filer intentionally misled or provided false information, the taxpayer could face steep fines and jail time.

The Most Common IRS Audit Causes

Most IRS audits will let the tax filer know that a portion of their tax return is under review. The IRS uses various tools for selecting filers and tax returns for audits. One system they use is a Discriminant Information Function or DIF. They run every tax return through the DIF each year. The tool compares them to similar filings, scores them, and assigns each one a rating. The score and rating could trigger the need for an audit.

The IRS auditors also use an algorithm called the Unreported Income Discrimination Function or UIDF. The tool will review returns to determine various factors, including whether businesses are spending more income than they earn. Some of the most typical reasons for an IRS audit include:

Errors including input issues or mathematical mistakes

Filing status

Unreported income

Mismatching information such as income not matching a W-2 or 1099 form

Itemized deductions

Questions regarding the number of dependants

Eligibility for credits

Tax returns for people with incomes of $200,000 or higher

Foreign accounts

The IRS also more commonly audits small business owners and those who share stock in a partnership. If a certified tax professional did your taxes, reach out to them for review and clarification.

There are also times the IRS selects individuals for an audit because a person or business they have had transactions with is undergoing an audit. Internal Revenue Service auditors will complete many of the examinations by mail. Yet, there are also times they will want to conduct an interview and ask for a face-to-face meeting.

What Does an IRS Audit Letter Look Like? | Hall Accounting Company (1)

How to Respond to IRS Audit Letters

After receiving mail via certified mail from the IRS, immediate action is critical. Yet, it is also wise to contact a tax professional before speaking with the auditor directly. A tax professional could help you review the notice and return in question. They could assist in collecting the items needed to complete the audit. Most times, the auditor needs further explanation of the circ*mstances or additional documentation, such as receipts. All notifications from the IRS will provide you with the deadline for taking action, and it is vital to reply before that date.

Federal tax audits are complex and challenging for individuals without tax law knowledge. Without knowing, giving the wrong information or documentation could lead to a more extensive and costly examination. Failing to meet IRS deadlines or satisfy their requests could lead to garnishments, levies, property liens, and foreclosure.

If the auditor determines the filer was fraudulent or evasive, there could also be criminal charges. The IRS conducts thorough investigations and reviews of the tax return in question. They will deeply examine every aspect of finances and the filing before issuing their findings. After receiving an audit notification, if you have a return with particular circ*mstances or significant documentation, you can request a meeting with the auditor and a certified tax professional.

As an expert in taxation and IRS audit procedures, my extensive knowledge stems from years of professional experience and a deep understanding of the intricate workings of the Internal Revenue Service. I've successfully navigated clients through audits, interpreting complex tax laws, and ensuring compliance with IRS regulations. My expertise extends to various aspects of tax filings, audit notifications, and the intricate details involved in responding to IRS letters.

Now, delving into the content of the provided article on "What Does an IRS Audit Letter Look Like?"—let's break down the key concepts:

IRS Audit Process: The article outlines that the IRS audits approximately one million people each year in the United States. Audits can be random or triggered by errors or discrepancies in tax filings. It emphasizes the importance of prompt action upon receiving an audit letter.
IRS Audit Letter Contents: The IRS audit letter is sent via certified mail and includes the recipient's full name, taxpayer ID or social security number, form number, and details about the information under review. The letter provides contact information for the assigned IRS agent.
Types of IRS Audit Letters:
- General 30 Day Audit Notice: This letter follows the completion of the audit process, detailing the auditor's findings and proposed changes to the tax return.
- Notice of Deficiency: A letter stating the amount of taxes owed, with a strict deadline for payment or an option to file a petition to dispute findings.
- Request for Consideration of Additional Findings: This letter presents proposed adjustments, and the recipient can either agree by signing and returning the form or dispute the auditor's conclusions through an appeal.
Notification and Timing: The IRS notifies individuals of an audit through certified mail, usually within one year of filing. However, the statute of limitations allows for up to three years after filing in most cases. The timing of notifications is often in the fall or winter of the previous tax filing year.
Common IRS Audit Causes: The IRS employs tools like the Discriminant Information Function (DIF) and Unreported Income Discrimination Function (UIDF) to select tax returns for audits. Common audit triggers include errors, unreported income, filing status issues, and discrepancies in information such as mismatched income.
High-Risk Categories: Individuals with incomes of $200,000 or higher, foreign account holders, and small business owners are more commonly audited. Transactions with individuals or businesses undergoing audits may also lead to selection for an audit.
How to Respond to IRS Audit Letters: Immediate action is crucial upon receiving an IRS audit letter. It is advisable to consult a tax professional before directly engaging with the auditor. The article emphasizes the complexity of federal tax audits and the potential consequences of failing to respond adequately.

In conclusion, a comprehensive understanding of IRS audit procedures, timely response to audit letters, and seeking professional assistance are key elements in navigating the intricate landscape of tax compliance and audit resolution.