An audit letter from the IRS means that they are going to look at some (or all) of your tax documents. They're required to send this letter because of the IRS’s internal policies. These notifications can be very stressful; however, knowing what an IRS audit letter says can help you deal with this in the most correct way. These types of letters are meant to tell you what the problem is, what the IRS requires, and what your rights as a taxpayer are.
Identification of the Tax Year and Return
An IRS audit letter tells you what year(s) they're looking at. This is significant because the IRS may audit more than just the current year. They may also use something like a letter number as a way to identify your correspondence.
The letter also gives you details if the audit is more focused on a few particular things. They may just want to look at particular deductions or credits or just the overall income you've reported. This section on the audit is helpful because it tells you what to focus on when you go to find the returns and what the IRS is questioning.
Explanation of the Issue
One of the critical parts of an IRS audit letter is the reason the IRS is reaching out to you. It could be an issue with the income you reported on your tax returns and the income reported to the IRS by an employer or bank. It could also be that you are claiming taxes that are high on an expense or it could be on your income level.
Occasionally, the letter might say that the IRS just needs additional information documented to justify the information provided rather than saying there is a problem. The wording of these letters is typically simple, straightforward, and neutral. It’s a request for information and not an implication of any guilt or wrongdoing on your part.
Request for Documentation or Action
Requests for additional information will usually tell you exactly what you need to do for them. Most of the time it’s providing them with receipts, statements, canceled checks, W2’s, 1099s, or records to support your claims for deductions and credits.
The letter will tell you whether you can respond by mail, e-file, or if there’s an option for an in-person meeting, and what the deadline is. If you fail to respond by the deadline, the IRS will likely adjust your return to what their information shows, judging by the information they already hold.
Received an IRS audit letter? Don’t ignore it. Review your notice with a tax professional today to understand what the IRS is requesting, avoid costly mistakes, and respond correctly and on time.
