July 01, 2010 | Written by: Mark D. Olander, EA, USTCP
Ignoring the IRS doesn’t make them go away, ask Al Capone. They will continue to send letters, and if you never respond the assumption will be that you concede to their assessment. Eventually you will hear from their collections division, and at that point your case will be even more difficult − maybe even impossible − to resolve. This month’s case shows the value of having an audit representative who understands the audit process and what to do when the time available to resolve a case is quickly running out.
The audit came in as a Notice of Deficiency (NOD), which means the member had received at least two letters previously but had done nothing to address them. By the time he reported his audit to TaxResources, there were only sixty days left to resolve it. While sixty days may seem like a lot of time, it’s usually not enough time to resolve an audit when you factor in the typical IRS response time.
The Audit Representative assigned to the case determined that the member had received the NOD in October of 2009, based on a “Substitute for Return” for 2005. The member thought he had successfully efiled his 2005 return on the original April 2006 due date, but the IRS had never received it and had prepared a substitute return for him based on income information received from third parties. The “Substitute for Return” showed a deficiency of $58,000, plus accuracy and late filing penalties as well as interest.
The Audit Representative provided the “original” return to the IRS, but due to processing delays she ended up having to petition the Tax Court. The Audit Representative worked with an exacting Appeals Officer to resolve the issues, which included obtaining an extension of time to allow the member to submit a corrected tax return. The corrected return would include the basis for securities sales that were omitted on the “original” return, the key to reducing the taxes owed. The Appeals Officer was understandably impatient with the taxpayer’s problems in providing information that should have been submitted in 2006, but our Audit Representative convinced her to grant the extension.
The issue is was finally resolved and the corrected tax return was accepted as filed with the Appeals Officer. The final balance due was approximately $1,700 rather than the $58,000 shown on the original NOD. The member was thrilled with our service and now understands the importance of contacting TaxResources immediately if ever again he receives another audit or notice letter from the IRS.
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