The new IRS audit tactic is designed to make you relax, while drawing upon the good nature of most US taxpayers. It starts with a letter from the IRS called the “Letter 566” which appears to be fairly innocent. The Letter 566 will state they IRS has reviewed your return and found a small discrepancy. The letter will ask for you as a taxpayer to provide specific information to resolve the discrepancy. The form letter has 22 boxes of potential subjects the IRS is interested in including but not limited to:
- Filing Status, head of household and exemptions
- Income you’ve received reported on a 1099 or K1
- Unreimbursed employee expenses
- Business deductions
- Itemized deductions
Here is the catch: Most US taxpayers will provide far too much information to the IRS in an attempt to appear cooperative, honest and to get on the good side of the IRS.
None of these could be further from the truth. The IRS knows the nature of a taxpayer. The actual goal of the IRS is to conduct an audit, and the agency is seeking information to expand that audit. The IRS revenue officer will use the information you provide against you. This new IRS audit tactic is drawing information from taxpayers they should not be providing and expanding the scope of the audit. In some cases it can lead into previous years as well.
The next notice the taxpayer receives is a notification of a “correspondence audit” or an “office audit.” If you face an IRS office audit you need to contact Allen Barron immediately. An office audit signals a substantial financial risk for you. The IRS would not send an auditor into the field unless they highly expected to generate a substantial amount of money from your checkbook.
If you face a correspondence audit and the amount is less than $1,000 you can probably handle it on your own. Carefully analyze the information requested by the IRS and keep your response limited to that information.
If the correspondence audit letter arrives saying you owe additional taxes or the amount is above $1,000 call Allen Barron immediately for a free consultation at 866-631-3470. The IRS makes thousands of mistakes a year. We have managed several clients who received letters from the IRS stating that the taxpayer owed money, when it was an IRS mistake. In one specific case, the letter stated the taxpayer owed several thousand dollars. When we researched the claim and contacted the IRS the revenue officer stated “the present balance is zero. They don’t owe us anything.”
Imagine if that taxpayer had simply sent a check. Most taxpayers are intimidated by the IRS and for good reason. The IRS has awesome powers including the ability to seize assets, place liens against your property, sweep or levy bank accounts and garnish your income. However, the IRS must also follow all US laws, the tax code and Generally Accepted Accounting Principles or GAAP.
The new IRS audit tactic is a disguise to gain additional information from unsuspecting taxpayers. Don’t fall into this trap. It is not in the best interest of most taxpayers to contact the IRS directly. Allen Barron provides a free guide “What to Expect from an IRS Audit” detailing the process of an IRS audit and what to expect. If you have been contacted by the IRS we invite you to call us for a free consultation at 866-631-3470.