Audit Documentation

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If the IRS flags your tax return and gives you a notice for audit, you have to respond. During the audit, which may be by correspondence or by phone, the IRS will go through with you, line by line, every detail of your tax return that they feel may be in error. And if after you complete the audit the IRS assesses that you owe more taxes than you have stated in your return, you are obligated to pay the higher amount. You will receive a letter from the IRS explaining the adjustments made to your tax return and informing you of your right to meet with an appeals officer should you disagree with the IRS’ assessment. When you lodge your appeal, you have to bring the audit documents to support your own tax assessment. Besides your annual tax return, you also have the right to file an appeal against a tax lien, a tax levy, a rejection of an offer in compromise or a penalty imposed by the IRS.

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Here is the audit documentation procedure for an audit appeal.

You first have to fill up Form 12203, “Request for Appeals Review” to make a small case request. If your case entails a disputed sum of more than $25,000 you should draft a “Formal Written Protest” and send it to the IRS. You can get more information on how to make an appeal through a Small Case Request or a Formal Written Protest, see Publication 5, “Your Appeal Rights and How to Prepare a Protest if You Don’t Agree”.

If you are allowed to proceed with your appeals request, you will have to attend an appeals conference at the IRS Appeals Office. Here you can be represented by a tax professional such as a tax lawyer or CPA and you should bring along your audit documents and even witnesses to support your case.

Another option besides an audit appeal is to request an Audit Reconsideration. But this can be done only if you submit new information affecting the amount of tax you owe, you were denied credits you believe you deserved, or you believe the IRS made errors assessing your tax or processing your return. An audit reconsideration will not be accepted if you have already made some payment plan agreement with the IRS which may include offers-in-compromise, installment agreements, closing agreements, etc., or if any tax court has already issued a final determination of your tax liability.

If your appeal is unsuccessful, the only course of action left would be to bring the matter to the Tax Court. However, you can only do this after going through the IRS appeals process.

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