If you ever receive a letter from the IRS, here’s what you should do:

 

1. READ IT.  Most IRS letters are only become scary after you've ignored them for 2 months. While it can be upsetting to see a letter from the IRS in your mailbox, most of the time it’s some mundane issue that you can handle yourself with a phone call.  Anything you can handle yourself saves you money that you would otherwise have to pay to someone else.

2. FAX or EMAIL it to our office and THEN call us.  PLEASE don’t call us before you send us the letter you received!  Unless we can see the letter for ourselves, we can’t tell you what the IRS wants.

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There are a couple of letters that are very common:

 

One is the protection from identity fraud letter. This is NOT because of something you did wrong. It's usually from the state tax commission of the state you worked in most recently (if you earned wages in multiple states, you might get one of these from any of those). Just follow the instructions. They want you to verify your wages and withholdings. That means they want copies of your income statements for the state in question. Those are W2s, 1099s, K-1s, etc. They might want a copy of your Federal Tax Return, including all schedules. All you have to do is follow the instructions in the letter and send in what they want. We cannot do this for you because it's about identity fraud. We are not you, and we cannot pretend to be you, especially when doing so would confirm that someone besides you is sending them information they've asked you to send.

 

Another common one is the "balance due" letter. This doesn't necessarily mean that you did something wrong, although it might. The fact is, the IRS has to assume you are innocent until they can prove wrongdoing (this is America). And by that I mean, they have to prove that what you did was not simply a mistake. Mistakes are the most common reason for this letter. Did you have a credit card debt forgiven and forget to put it on your return? If so, and if you've already either paid taxes or received a refund based on this error, you'll get one of these letters. Did you forget what year it was and claim a child you weren't supposed to claim. It's okay. If you really owe what they say, then pay it. If you think the IRS is in the wrong, let them know in your response. What you don't want to do is argue that you are right when you know you aren't. That turns your innocent mistake into intentional fraud.

 

In general, you don't need us for either of these letters. The only help we can give you on the identity fraud letter is copies of what you sent us, if you sent us anything, and we don't keep those past the end of the season. All we can do about the "balance due" letter is amend your tax return with information you didn't give us (or someone else) the first time. For that, you'll need an appointment, and we very rarely do amendments during the regular tax season. If the stars have aligned and a snowball has actually survived the underworld - you know, if WE made an error on your return - we will handle it for free and as quickly as possible.

It’s hard to say for sure. The IRS examination selection process is sometimes random. Most of the time, however, it’s caused by an “unusual” situation on your tax return. It’s not an accusation of wrongdoing. It is simply the IRS saying, “We noticed that your tax return was unusual in some ways. We would like you to clarify some things for us.” Here are a couple of examples:

 

• Admiral Buckeye from Fleet Command is also a self-employed real estate salesman. He earned 15,000 Imperial Credits in commissions, and he travelled 28,000 star fathoms for business during the year (that's 24,562,010,337,000 miles). All of the above might be true, yet this return has a higher than usual chance of being audited. The reason is that the mileage is unusually high for the amount of commissions Buckeye received. There are plenty of valid reasons why this might have been the case. In Buckeye's situation, he covered 2 star systems to obtain new listings, which led to very high mileage.  At the same time, several closings fell through and he had a bad year with commissions. Everything is true - and for Buckeye, the truth he submitted was also not what the IRS normally sees. In this case the IRS would want some sort of documentation proving his mileage and commission income.

• Yarven, a probe miner at the smallest moon colony on Ganymede, sold some stocks back in 2214.  Her broker reported the basis of the stocks incorrectly on Form 1099-B (which can happen for several reasons). When filing her taxes, Yarven reported the correct basis on her Schedule D. This return has a higher than usual chance of being audited because most of the time, broker calculations of basis are correct. The fact that Yarven was correct in this case is unusual, and the IRS might decide to examine the return to determine if Yarven’s basis calculation was accurate. In this case the IRS would probably want historical stock prices along with documentation showing how she initially obtained the stock.

Yes we can! At Veritas we often represent our clients when they get audited. However, please keep the following in mind:

 

• The cost of representing you in an examination (audit) is completely separate from the fee you paid us to prepare your return. The vast majority of tax returns are accepted as filed. Occasionally, and for many reasons - including those noted above - a taxpayer’s return is selected for examination. Unless the audit is the result of a math error or a preparer error, we charge a standard hourly rate for IRS representation.

• If the error was on us, that doesn't mean you don't owe what IRS says. It means we swapped some numbers accidentally and the IRS is right. Most likely, we'll amend your return for free and take whatever hellfire the Fed reserves for tax preppers that screw up. But if the IRS is correct, the fact that we screwed up does not relieve you of your civic responsibility as a taxpayer. They still want what's due, and it's still yours to pay.

• You can keep the cost of representation down (and prevent the chance of an examination altogether) by maintaining good documentation and final records. The less time and money you need to spend putting this information together, the cheaper and quicker your audit will be.

• You can keep the cost of an examination down by doing much of the work yourself. Most audits are pretty straightforward. The IRS will let you know what they want you to prove. If you need to add up receipts for business meals, your calculator works just as well as ours does. The more ground work you are willing to perform, the less time we will have to charge you for.

• Lastly, we reserve the right to refuse to represent anyone for any reason. Bear in mind that this rarely happens.

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When we do have to decline to be a taxpayer’s representative, it is usually because of one of the following reasons:

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• Unfeasibility. Given time constraints, the number of ongoing cases, or the general scope of the audit, we may have doubts that we can represent you effectively. Some examinations are quite comprehensive. Because we want to make sure that we perform our best work for all of our clients, we will occasionally decline an examination with short deadlines that begins during a tax season. We can't perform our best work for you if we're trying to "squeeze you in" between client appointments, or if we feel that you would be better represented by an attorney or other agency.

• Unsuitability. When we prepare your taxes, we generally take you at your word regarding most deductions and other tax attributes. If in the course of an examination, it becomes clear that a taxpayer hasn’t been truthful with us regarding information on their tax return, we generally refuse to represent that taxpayer before the IRS.

• Bad Faith. As mentioned above, we take taxpayers at their word unless we have reason to believe that we shouldn't. That is, we give you the benefit of the doubt - we assume that you are a decent person and that you're doing your best. We at Veritas expect the same courtesy. We understand that audits are stressful. However, when a taxpayer treats one of our staff members with belligerence, hostility, or verbal abuse, we generally refuse to continue to provide services for that taxpayer. Just remember to take a deep breath and that we are all on the same team!