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What to look for on an IRS audit notice

Last year, the IRS audited about 1 million tax returns. While overall the 0.5 percent rate is low, the rate increases for high income earners. On the other end of the spectrum, those who claim an Earned Income Tax Credit (EITC) are also more likely to get an audit notice.

ProPublica annotated an audit notice sent to a taxpayer who had claimed the EITC in 2017. In this situation, the audit delayed the expected refund of several thousand dollars and disallowance of EITC would have resulted in a tax bill. Here are some important pieces of information in an audit notice.

What do you owe?

In the first section, the letter will have two check boxes. Usually, the second box is checked and includes the amount the IRS believes you owe. This amount may include penalties and estimated interest. These fees can quickly increase the overall bill especially if the IRS claims you underpaid the prior year’s quarterly estimated taxes.

While an audit is open, you do not yet owe any money. If you do not respond, you can expect a second letter – a notice of deficiency – that contains the official tax bill.

Why do you need to notify the IRS after moving?

You are responsible for providing the IRS with your current address. If a notice goes to your old address after a forwarding period ends, you could lose the chance to respond.

How do you fight an audit?

Your chances of successfully challenging an audit are much higher with the help of an experienced tax attorney. Seeking help at this stage can also avoid a deficiency notice and trip to tax court.

If you ignore the audit letter, you can count on more mail from the IRS. The next letter is the final notice of deficiency. If you do not file a petition to challenge the assessment with the Tax Court within 90 days, the IRS may start trying to collect the balance.

A large majority of audits are computer driven through information matching and algorithms. When you respond, you have a better chance that an actual person reviews your documentation. This process is not usually quick and can take from six months to years depending on the complexity of your return.

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