Article written by Andrew C. Grant
The title to this article is a little misleading. The IRS does not call taxpayers about tax liabilities. They send letters. Lots and lots of letters. So if you get a call from someone saying they’re with the IRS and you need to pay money immediately you can ignore them. Those calls are scams.
Letters from the IRS, however, are not scams, and they require an appropriate response.
Initial letters from the IRS generally take one of two forms: either they are making corrections to your return, or they want to gather more information through an audit. The audit can either be through the mail, or it can involve an in-person interview at the local IRS office, your home, place of business, or your accountant’s office.
If you get a letter indicating that your return has been selected for an audit, the first thing to do is not panic. If you have an accountant get them involved immediately. They are generally familiar with the audit process and can help steer you through it. If you do not have an accountant, again, don’t panic. Read the IRS letter carefully to identify exactly what they are looking for and how they want you to respond. Make sure you note the date they want a response by and do not miss it. You can request an extension if needed, but simply ignoring the deadline will not help your tax situation.
In a mail audit you can either fax or mail the requested documentation. The contact information will be in the letter you received. If mailing the documents to the IRS always use a service that provides delivery confirmation.
For an in-person audit, contact the IRS representative specified in the letter to arrange the initial meeting and confirm the documentation they want to see. Audits typically go back only three years, so you shouldn’t need records beyond that, but under certain circumstances a longer lookback period is allowed.
Through the audit the IRS may propose changes to your return. You can either agree with them or dispute them. If you dispute them there are a number of paths to choose from, including an appeal to the IRS or petitioning the U.S. Tax Court.
When the tax debt is finalized it becomes a question of how to pay it. If you cannot pay the tax in full you should be able to work out a payment plan. If the tax owed is more than you can reasonably expect to pay over time, then you may be able to get the debt reduced through an offer-in-compromise. Getting the IRS to accept less than the full amount owed is not a given (the IRS does not routinely settle tax debts for pennies-on-the-dollar), but depending on the facts involved it may be possible.
Remember, throughout the process you are entitled to representation. Either an accountant, attorney, or enrolled agent can talk to the IRS on your behalf. It may be advisable not to do it alone.