You sent in your tax return early this year and, by your calculations, Uncle Sam owed you a tidy sum of money. Congratulations!

Yet, instead of a big check in the mail (or a sizable deposit in your bank account) you received a Letter of Examination.


IRS Letter of Examination. What this means.

Is the IRS questioning your integrity as a taxpayer? You’re fairly methodical about filing your W-2s and relevant information. You always do the math twice. This year, you even invested in one of those fancy software programs that calculated everything for you. Yet, the IRS wants to call you out on the carpet. Right?

Not exactly.

Simply put, the IRS letter is saying that, after closer “examination”, your math doesn’t add up with theirs. Possibly, you’ve overlooked some important information, for instance that W-2 for a temporary administrative assignment you accepted..or a 1099 for a one-time graphic design project you took on after hours.

The IRS is advising you that they found an error or two, usually in their favor; They may owe you far less money than you originally calculated on your return. Sometimes, the IRS finds that you actually owe them money!

We all make mistakes! The IRS recognizes human error. That’s why they request copies of the same forms you receive.

It’s not only a courtesy to R.S.V.P to Uncle Sam, it’s the law!

You have 60 days to respond. You can either agree with the IRS on the adjustment they’ve made, sign the form and send it back with a check, if applicable.  Make sure you mail your response by the due date and send it certified mail as proof of your due diligence. If you are late in responding you may have to pay a penalty!

What does it mean when the IRS says they want to audit you?

The IRS wants to audit you.  That’s really serious, right?

An audit simply means the IRS is asking for proof of the non-taxable claims you made, like medical expenses, charitable donations or business-related travel mileage, usually to the tune of $5,000 or more.  Or, possibly, they discovered a discrepancy in the Schedule C form you completed for your small business. Mistakes are very easy to make on these forms, especially if you try to complete them without the help of a professional tax expert, like an Enrolled IRS Agent.

Just a friendly reminder…….

As with the Letter of Examination, you will have 60 days to respond and collect all your proof for the audit. Gather all your relevant W-2s, 1099s, Schedule Cs, cancelled checks (along with copies of bills) and receipts.

Don’t procrastinate! And don’t let your anxieties persuade you to play “ostrich” with your head in the ground. Due diligence on your part really pays off.

Don’t forget your winning weekend in Atlantic City!

By the way, don’t forget about any earnings from gambling. Whether you’re a professional gambler – or simply a weekend warrior –  you must report your winnings on your tax return. You don’t recall the specific amount you raked in last year? Check the 1099 mailed to you by the casino. (Can’t find it? Remember the envelope with the casino logo that you tossed in the garbage? That was probably your 1099. Just request another copy from the casino.) Remember, Uncle Sam has a copy of every 1099 that you do and he’s ready to cash in on a substantial portion of every dollar that ends up in your wallet.

Ask for help. Hire an expert.

Before you hand over your hard-earned money to the IRS, or agree to an adjustment, you might want to get some help. After all, you do have the right to seek representation, whether you hire an attorney, a Certified Public Accountant or, ideally, a federally licensed IRS Enrolled Agent (EA). With your tax expert’s guidance, you will need to complete a revised, accurate tax return based on extensive questions he or she will ask as well as obtain copies of all necessary proof of expenses and earnings.

Invest a little to save a lot.

Studies show that individuals who hire a tax expert to represent them regarding audits – or even adjustments made on the return – are far more likely to reduce the sum they owe the IRS. On occasion, tax experts will find that the IRS actually owes you a refund. But whether you agree to the adjustment indicated in the Letter of Examination or owe a sum to the IRS after an audit, your tax expert can help set up a payment plan that is amenable to both parties.

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