4 Steps To Take If You Disagree With the Results of a Tax Audit
It can be heart-stopping to receive a letter from the Internal Revenue Service (IRS) that says your tax return is being examined.
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Tax audits, while rare, do happen and are no fun. Failing to comply with an audit can have serious consequences, including criminal charges. It is important that you understand your rights and promptly respond to all requests for information.
According to eFile.com, over 650,000 individual audits were carried out by the IRS in 2021, representing approximately 0.39% of the total income tax returns filed for the year.
While tax audits can be frustrating, it is important to know that the results are not set in stone. In many cases, you have the opportunity to appeal the decision. However, you need to act quickly as you might have just 30 days to contest the decision.
Here are the steps you should take if you disagree with the results of an IRS tax audit.
Determine Whether You Want To Appeal
The first step you should take after an audit is to determine whether you want to appeal the decision. In some cases, the examination may result only in a small adjustment to your original filing. If the amount is unsubstantial, it might not be worth going through a formal appeal.
However, it is important to note that many times appeals are successful or at least result in a reduction of the assessment. So, if you disagree with the auditor’s findings, you can think about contesting the results.
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Consider Hiring a Representative
If you do decide to move forward with an appeal, it may be worth hiring a representative. A representative at an appeal is limited to:
- A tax attorney
- A certified public accountant (CPA)
- An IRS-authorized enrolled agent
You should always thoroughly vet the representative you plan to hire. Take advantage of the free consultations offered by many tax attorneys and CPAs. You also might be eligible for free or low-cost representation through a Low Income Taxpayer Clinic (LITC).
Review Your Options
When dealing with the IRS, you want to be sure you are following the proper procedures for what you hope to accomplish.
In some cases, you will be able to request an “Audit Reconsideration” — a way to have the findings of your audit re-evaluated by the IRS. However, it is available only under limited circumstances, including that you had new information or you disagree with what the IRS says you owe.
If you do not respond to the first notice, you may receive what is known as a “30-day letter.” The letter notifies you that you have 30 days to submit a protest letter. The case is then generally sent to the Appeals Division, according to eFile.com.
If you fail to respond to the 30-day letter, you might then receive a 90-day letter or Notice of Deficiency. Once you receive the 90-day letter, your only option to appeal the audit is by filing a Tax Court petition. You must respond within 90 days of the notice or you might lose your right to appeal.
Ask for an Extension
Once you exhaust your right to appeal, you can ask for an extension on the adjusted amount that you owe. It is essential to remember that failing to respond to the IRS can result in criminal sanctions. It is always in your best interest to respond timely to any correspondence received from the tax authority and to retain a professional’s help if you believe there was an error.
The IRS can assess a lien or levy if you fail to pay your taxes. A federal tax lien is a claim against your property for failing to pay your taxes. A levy, on the other hand, is a “legal seizure of your property or assets.” In order to avoid a federal tax levy or lien, you need to respond to any notices you receive from the IRS. If you cannot afford to pay the full amount, ask for an extension to avoid these serious penalties.
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