A “correspondence audit” is conducted via mail, rather than by requiring someone to meet with an IRS officer. The IRS sends a letter, usually a CP2000 Notice, saying the information it has on file does not match the information reported on someone’s tax return. In many cases, this happens due to a simple mistake. Someone accidentally under-reports their income or over-reports expenses.
Although correspondence audits are, in general, less serious than in-person audits, if the IRS finds errors or fraud, the penalties can still be severe. Penalties might include:
- Payment of additional taxes
- Liens on property
- Fines
- Wage garnishment
- Criminal investigation
In addition to engaging with a tax law attorney who can protect your rights, there are other things you can do to make the process run smoothly:
Be honest
A correspondence audit often stems from an honest mistake. If you discover the error while reviewing your documents, inform the IRS office designated on your letter. IRS agents hold a fair amount of discretion – being honest with them can help mitigate, or even eliminate, penalties, and additional taxes.
Gather and annotate documents
In its letter, the IRS will request copies of your tax returns and other materials. Be sure to send any receipts or bank statements that can help explain your situation. You can also include notes to help the auditor sort through your documentation. Keep in mind; you may need to provide tax information for multiple years.
Pay close attention to the deadlines
The easiest way to encounter problems in a correspondence audit is to respond late, provide incomplete information, or not respond at all. When you receive the first IRS letter, pay close attention to what documents it requests and how much time you have.