IRS Law Blog

The IRS audited your tax return, got it wrong, and now they are sending you bills to collect a tax that you do not owe.

Maybe the IRS didn’t have your correct address, and you never received their notice of the audit, and as a result were not able to participate.

Or maybe you had poor communications with an IRS auditor, who rejected your records and your truth, and made changes to your tax return that you know are wrong.

And to make matters worse, the IRS is now sending notices of intent to levy your property and is trying to force you to pay these taxes.

If the IRS would just hear you out, it is possible that they would find that you do not owe them at all. Or maybe you owe them a lot less.

You are not at the end of the road – the IRS has internal guidelines that permit it to reconsider audit results, even after the audit is closed and the case is in collections, and get matters set right.

Even better, audit reconsideration puts the brakes on IRS collection enforcement. Specifically, IRS Policy Statement 1.2.14.1.4, requires IRS collection agents to stop collecting when a taxpayer raises a question or presents information that creates a reasonable doubt about the correctness of a tax liability.

With that background, let’s walk-thru the steps necessary to secure audit reconsideration and put the brakes on the IRS:

• We will need to get a copy of your audit examination report.  When the IRS closed their audit and made the changes to your return, they sent you a report that identified all the changes they made to your taxes.  We need that to know what we are challenging and to provide the report to the IRS as part of the reconsideration request.

• If you do not have a copy of the audit examination report, it can be secured by making a request to the IRS to provide it under the Freedom of Information Act.  Not only that, we can request your entire audit file – auditor notes, records, letters, IRS Notice of Deficiency, and any records that you submitted. And if you do not have a copy of the tax return that was audited, we can request that, too.

• After securing the audit report and IRS files, we need to turn our attention to your records.  That entails pulling together any documentation that you have that proves the audit report wrong.  For example, let’s say the IRS disallowed your materials, supplies, and subcontractor labor.  We would need go through your receipts and checks to verify that the expenses were paid.  That could include your bank statements, receipts, cancelled checks, invoices – anything that shows the IRS that you should be allowed the deductions.

• And if you do not have the records, sometimes that can be okay, too.  In many situations, IRS will accept recreated records – for example, if you are in real estate sales, it is likely that you used your auto for listings, showings, and networking.  This is a business expense you are entitled to claim, but you have no record of how many miles you drove for business, which the IRS will likely require.  It is obvious you did not sell those houses sitting at desk – you had to also get out of the office to do your job.  With your calendar, we could recreate where you went, who you met with, the miles driven, and the business purpose to show the IRS that you should be allowed the expense as a tax return deduction.

• Armed with the IRS’ records, and yours, a request for audit reconsideration can be filed with the IRS.  In most cases, a well-documented request for reconsideration will be accepted by the IRS for processing, and sent back to their audit division for a fresh review.  The case will then be assigned to an IRS agent, who will contact us to discuss the request, documentation, and reduction to your liability.

• If our records are not accepted to our satisfaction by the audit division during their reconsideration, we have appeal rights.  This gives you the ability to go one step further, and request that the IRS Office of Appeals take a look at your records if you disagree with the results of the reconsideration.  In other words, there are multiple layers of relief available, and the buck should not stop at just one person.

If the IRS agrees that their audit was wrong, a new examination report will be issued, changing the original records and reducing your tax liability.  The IRS will process these changes, and then send a computer-generated billing notice reflecting the adjustments, and the new, lowered amount owed.

Remember, the law requires you to pay what you owe, no more.  If the IRS is trying to collect the wrong amount from you, audit reconsideration can correct the IRS’ records, and reduce what you owe. And remember, once the IRS accepts our request for audit reconsideration, the brakes are put on the IRS collection power. That means no levies or seizures of your property by the IRS until the correct liability is determined.  After all, there is no need to let the IRS try to collect more than what you really owe.