The IRS Is Auditing You. Here Is What To Do.

First, find out what kind of audit it is

There are three kinds, from least to most serious. A correspondence audit is handled entirely by mail and usually questions one or two items. An office audit asks you to bring records to an IRS office. A field audit is the broadest, where an agent comes to your home or business. The letter code in the top right corner tells you which one you have and how long you have to respond.

The rights that matter right now

• The right to representationA CPA, enrolled agent, or tax attorney can deal with the IRS for you. With a power of attorney on Form 2848, the IRS sends everything to them, and you may not have to attend at all. This right is in the law at Internal Revenue Code section 7521 and in the Taxpayer Bill of Rights.
• The right to know whyYou can ask why the IRS wants a piece of information and what it will be used for.
• The right to appealIf you disagree, you can take it to the IRS Independent Office of Appeals, a separate group from the examiner.
• The right to finalityThe IRS generally cannot audit the same year twice without manager approval.

Your first moves

• Find the deadlineIt is in the top right corner of the letter. Most give you 30 days. Put it on your calendar now.
• Do not ignore itSilence lets the IRS decide against you and assess the full amount.
• Give them only what they asked forDo not volunteer extra years, accounts, or explanations. More information invites a wider audit.
• Get a representative before any interviewAnything you say in person can widen the scope. A professional keeps it narrow.
• Respond in writing and keep copiesSend by certified mail and keep proof of what you sent and when.

The letters that decide your case

After the exam, the IRS sends Form 4549, the report of proposed changes. If you do not agree, you get a 30 day letter, Letter 525, which gives you 30 days to take the case to the Independent Office of Appeals. If that does not resolve it, the IRS issues a Notice of Deficiency, the 90 day letter, sent as Letter 3219 or CP3219A for a mail audit and Letter 531 for an in person audit. That gives you 90 days, or 150 if you are outside the country, to petition the U.S. Tax Court. This deadline is set by law. The IRS cannot extend it, and missing it closes the door on Tax Court for that year.

How far back the IRS can go

Usually three years from the date you filed, under Internal Revenue Code section 6501. If you left off more than 25 percent of your income, it stretches to six years. If a return was never filed, or the IRS alleges fraud, there is no time limit at all.

Already lost or defaulted the audit?

If your audit already closed and you owe because you missed a deadline or could not pull records together in time, you may still be able to reopen it. That is a separate process called audit reconsideration. See how audit reconsideration works.

The legal basis