IRS audit results are often incorrect for two reasons:
- It didn't apply the law to the facts correctly
- It didn't have the correct facts…or sometimes any facts, to apply to the law
The second reason is more common than the first. Either you didn't participate as a result of not receiving notice, or you didn't fully participate because you didn't supply the IRS the proof required to make a difference.
As a result, the IRS is now using the debt it created to try and freeze your account or garnish your wages. Your frustration level is through the roof because you know the debt amount they claim you owe is too high. If the IRS would just review your documents (the ones you didn't supply in the first place), the debt would be less, probably much less.
But..you feel trapped.
If your situation sounds similar, there may be some hope.
IRS internal policy allows it to “reconsider” audit results and…if the reconsideration request creates a reasonable doubt as to the correctness of the liability…the IRS will halt collection activity as well while the request is being considered. (See IRS Policy Statement 188.8.131.52.4)
If you have had an audit go wrong, are frustrated and want to challenge the results…here are the steps:
Obtain Audit Exam Report
This report was completed by the Auditor to explain what she did to change your return. Either you still have a copy, or the IRS will need to supply it as a result of a properly submitted Freedom of Information Act request.
When we're involved, we'll request this report and the entire file, which probably contains the auditors notes, records you submitted, any letters and other records. We can get a copy of the tax return you initially filed as well.
Once the IRS record is obtained, we'll review the documents you provide that might help prove that the deduction(s) you took were correct. This may be in the form of bank statements, cancelled checks, invoices, receipts or other items.
If you don't have great records…we may be able to help you re-create them. Calendars, comparable business expenses in the industry, and other information might help us create the proof needed to challenge the audit result.
A well put-together Audit Reconsideration Request will typically be accepted by the IRS, collection will stop, and an IRS agent will be assigned to review the material. That agent will contact to discuss and review.
If the Audit Reconsideration doesn't go well in whole or part, an internal appeal may be available.
The IRS will issue a new Audit Exam Report if it agrees with some or all of the arguments, reducing your liability.
We don't want you to pay anymore than you actually owe and the law is on your side in that regard. So if you missed your chance during the audit and are certain the IRS got the numbers wrong in calculating your debt…you may want to ask the IRS to re-consider it's decision.