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I Received an IRS Audit Letter. Now What?

Updated: Mar 8, 2023

What is an Audit?

An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.

Why am I being selected for an audit?

Selection for an audit does not always suggest there’s a problem. The IRS uses several different methods:

  • Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.

  • Related examinations – we may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

Next, an experienced auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examining group.

How am I notified?

Should your account be selected for audit, we will notify you by mail. The IRS will not initiate an audit by telephone.

What do I need to provide?

The IRS will provide you with a written request for the specific documents we want to see. Here’s a listing of records the IRS may request. The IRS accepts some electronic records that are produced by tax software. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what we can accept.

The law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed. It is recommended that you keep records for the last 7 because the IRS can go back further if they find it necessary.

How far back can the IRS go to audit my return?

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, they may add additional years. They may go back up to 6 years, more if criminal activity is suspected. They have 10 years to collect taxes due from the date of assessment. You forfeit any refund after the 3 year mark.

What are my rights?

Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes. These rights include:

  • A right to professional and courteous treatment by IRS employees.

  • A right to privacy and confidentiality about tax matters.

  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.

  • A right to representation, by oneself or an authorized representative.

  • A right to appeal disagreements, both within the IRS and before the courts.

It is recommended that you speak with your tax professional before responding to the IRS audit letter to make sure you understand what is being asked of you, or to assist you through the process if they are the one who filed your tax return.

If your tax professional doesn't respond or refuses to help you, you can call the taxpayer advocate, a free service for taxpayers, to help you through the process.

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