Instead of in-person audits with an IRS agent, many routine reviews are being handled through form letters. These are known as correspondence audits. The IRS uses these letters as a means to ask for clarification and justification of certain deductions on a person’s tax return. These are commonly seen in the event of large charitable deductions, withdrawals from retirement accounts or education savings plans, excess miscellaneous deductions, and small business expenses. To learn more about what you should do after receiving a correspondence letter, continue reading below.
What do I Need to Know?
When receiving a correspondence letter from the IRS, it is important to not panic. Oftentimes, the IRS uses computer programs in order to compare individual return deductions with the averages for a person’s income level or profession. When a person receives a correspondence letter, it may simply be due to the fact that they fell outside the averages. As long as you provide a prompt and thorough response with the proper documentation, it should not become an issue.
The best way these matters can be handled is by keeping well-organized documentation at all times just in case it may be needed in the future to support deductions. If this is done correctly, the correspondence audit will end with a “no change” letter from the IRS, stating that you have addressed their concerns on the matter.
Are There Complications With Correspondence Audits?
Correspondent audits usually only target a few areas on a person’s tax return. However, there may be some additional complications with the type of audit, such as:
- It is an audit. There are many taxpayers who fail to realize that mail correspondence is, in fact, an audit. When receiving the letter, it is important to receive help. In addressing the audit promptly, it should also be done professionally and accurately.
- There is no personal touch. Unlike audits that are in person, you will not have another individual who can personally understand your situation. This can be difficult if you are told that you are not providing enough information, are missing information, or if you disagree with the IRS’ findings.
- Going back and forth with the IRS. In the event that you want to challenge the findings of the IRS, it usually requires several back and forth letters. While this can be frustrating, it is important to be patient and trust that if you are correct in defending your position, you should come out just fine.
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Werdann DeVito LLC is an experienced Certified Public Accountant firm serving clients throughout New Jersey with all of their financial needs. If you need quality assistance with accounting, tax, or consulting services, contact Werdann DeVito LLC today.