How to Respond to an IRS Investigation Letter

Getting a letter from the IRS can be intimidating and stressful. But don’t panic! With the right approach, you can handle an IRS investigation letter professionally and resolve any issues. This article will walk you through the steps to take when you receive that dreaded letter.

Take a Deep Breath

I know, easier said than done! But seriously, take a moment to breathe and try to stay calm. Getting emotional or panicking won’t help the situation. The IRS is not out to get you – they just want to resolve any discrepancies. So take some deep breaths and know you’ve got this!

Read the Letter Carefully

This is so important – read through the entire letter slowly and carefully. Make sure you understand what the IRS is asking of you. Look for any deadlines to respond and make note of those. You’ll also want to take stock of what enclosures they sent along, like notices or forms. This step allows you to fully understand what’s being asked of you.

Gather Supporting Documentation

Next, you’ll want to pull together any documents that relate to the investigation. This includes things like:

• Tax returns
• Receipts
• Invoices
• Bank statements
• Canceled checks
• Ledgers
• Other financial records

Gather everything together in an organized fashion so it’s easy to reference. Having supporting documentation available will make it easier to address any discrepancies.

Contact a Tax Professional

In many cases, it’s advisable to loop in a tax professional like a CPA or tax attorney. They have experience navigating IRS investigations and can help put together your response. They can also represent you directly with the IRS if needed. At minimum, consider having a tax pro review your situation before responding yourself.

Draft a Response Letter

Now it’s time to draft your response letter to the IRS. This is your chance to address the investigation head-on and share your side. Your letter should include:

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• Your name and contact information
• A reference to the letter you received (date, notice number, etc.)
• A brief background explaining your position
• Supporting documentation where applicable
• A respectful yet confident tone

Stick to just the facts here – no need for emotions or accusations. Outline your position logically and cite the appropriate financial records or tax law references. Having a tax pro review your draft can help strengthen your response.

Make Copies of Everything

Before sending your response to the IRS, make several copies for your records. Include copies of the investigation letter, your draft response, and any supporting materials you’re including. It’s helpful to have a complete file documenting your response for future reference.

Respond by the Deadline

Double check the letter for any response deadline and make sure to meet it. If you need an extension, you’ll need to request that in writing. Responding promptly shows good faith and that you are taking the investigation seriously.

Send Your Response Certified Mail

It’s best to send your response letter and documentation via certified mail with return receipt. This provides delivery confirmation and tracking. Send it to the address provided by the IRS in the letter – making sure to include any enclosures or attachments.

Be Prepared for Follow Up

Your initial response likely won’t be the end of communications with the IRS. Expect follow up questions, requests for additional documentation, or even requests for in-person meetings. Continue to respond promptly and professionally. If you disagree with their position, reiterate your stance clearly.

Consider Filing an Appeal

If the IRS decides to assess penalties or taxes after their investigation, you have the right to file an appeal. There are various appeal options including:

• Appeal within the IRS
• U.S. Tax Court
• U.S. District Court
• U.S. Court of Federal Claims

A tax professional can advise you on which appeals process fits your situation. Don’t be afraid to stand up for yourself if you disagree with the outcome.

Seek Help from a Taxpayer Advocate

If at any point you feel lost navigating the IRS investigation, contact the Taxpayer Advocate Service. This independent organization within the IRS aims to help protect taxpayer rights and resolve issues. They can provide guidance if you’re hitting roadblocks with the IRS.

Pay Any Amounts Owed

If the investigation uncovers taxes owed, pay these promptly to avoid further penalties or interest. You can request an installment agreement if needed. Take care of any financial obligations uncovered – this shows good faith.

Learn from the Experience

While no one enjoys getting that IRS letter, you can take important lessons from the experience. Make any needed adjustments going forward to avoid issues. Update your record keeping practices if needed. And consider seeking ongoing tax help from a professional to stay compliant.

Dealing with the IRS may seem intimidating, but having the right approach can help you successfully navigate an investigation. Don’t ignore the matter – be proactive with your response. With some patience and hard work, you can resolve discrepancies and put the matter behind you.