3 Moves to Make as Soon as You Get an IRS Audit Letter

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  • Responding to an audit notice as quickly as possible is important.
  • If you can't handle the matter on your own, reach out to your tax preparer for help, or find an accountant who can assist you.

In 2019, only 0.25% of tax returns wound up being audited by the IRS, according to the U.S. Government Accountability Office. Since IRS manpower hasn't really increased since then, it's fair to assume that the audit rate over the past three years has been comparable.

But that doesn't mean that you won't get audited this year. If the IRS has an issue with your most recently filed tax return, you could end up with an audit letter in the mail pretty soon. In fact, the IRS actually has three years to audit a tax return, so you might receive a notice for a return you submitted for 2020 or 2021.

The most important thing to do when you get an IRS audit letter is keep your cool and don't panic. From there, here's your game plan.

1. Read your notice thoroughly

Often, when you get an audit letter, it's really just the IRS's way of asking for more information about your tax return. So it's important to read your audit letter carefully to see what it is the IRS wants.

The IRS may be proposing an adjustment to your tax return. For example, let's say you forgot to include the 1099 form your brokerage account sent you that shows some capital gains. The IRS might be seeking to lower your tax refund by $54 to account for those capital gains you didn't report.

On the other hand, the IRS might be asking for proof of the $7,300 in small business expenses you submitted. Make sure you understand exactly what's being asked of you.

2. See if you're able to respond on your own

Some audit matters are really simple to resolve. Going back to our example, let's say the IRS is saying you didn't report capital gains and now owe $54 more in taxes. If you realize you made that mistake and that the IRS is correct, you might just agree to that adjustment and move on.

Similarly, if the IRS needs a specific receipt to back up a claimed deduction and you know where to find it, then there's no need to involve anyone else in your audit response. Simply make a copy of it, attach it to your IRS reply, and send it off.

3. Seek help from your tax preparer, or find an accountant who can step in to help

IRS audits don't always result in taxpayers owing more money. Sometimes, an audit can work out in your favor. But if you're gotten an audit letter that has unfavorable financial implications, or you're confused about what the IRS wants, then it's a good idea to turn to a professional for help in responding to your audit letter.

If you used a tax preparer to file the return being audited, they're your best bet to turn to. If you filed your taxes on your own, then you may need to go out and find an accountant who can step in and help you resolve the matter at hand. In that case, asking friends, neighbors, and family members for recommendations can help you find one.

Although IRS audits aren't that common, you never know if you might end up on the receiving end of one. But if you take the above steps, you can hopefully resolve the matter as quickly and painlessly as possible.

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