What to do when you receive a Letter from the IRS
So a client received a letter from the IRS informing them that they are subject to an IRS
field audit. The letter indicates the IRS is especially concerned about their numerous rental activities. They have been asked to substantiate income and expenses for these activities over the past three tax years but they have not kept good records. They have never been audited before and are very concerned.
Key points :
1. Analyze possible causes for the audit: Probably many rental properties which could be an area the IRS is focusing in on at this particular time or it could just be the luck of the draw. Also possible that the number of rental properties could cause certain to the IRS based on the total income shown on the return.
2. What representation options do the Andersons have? They first should meet with the CPA that prepared the return. Also, potentially talk to a tax attorney to see if they feel comfortable with their CPA or tax attorney representing them. They need to be honest with their representative if they can or can not come up with the required support for the amounts on the return.
3. Consider possible outcomes of the audit. They may be able to get all their income and expenses detailed properly and show they has all proper income and expenses on the return and no tax liability would be due. Another issue could be that they can not get their records cleaned up and have a tax liability due. In this situation good representation is critical to negotiate with the IRS to the final amount of tax liability.