Audit Misconception #3

"I'll just ignore those letters from the IRS;
they can't do anything if they can't find me."

You wanna bet? Letters from the IRS are not to be ignored under any circumstances. If you don't respond to the audit "invitation" letter, the tax auditor may decide to disallow the items under question and assess additional taxes against you anyway.

You may not discover your misconception until it's too late, when the Collection Division starts seizing your bank account or pay check. If you think that you can get some sympathy from the Collection Division, you obviously have not read my other book, When You Owe the IRS. You must realize that once the deficiency assessment has been made by the auditor, the tax is payable and collectible like all other taxes. Revenue officers are not auditors. They cannot abate audit assessments.

However, it is not uncommon for a taxpayer to be assessed ADDITIONAL taxes and not know about it. This usually happens when the taxpayer has moved and the examiner hasn't been able to locate him. The tax is assessed anyway, and the burden then falls upon the revenue officer to locate the taxpayer and collect a tax the taxpayer doesn't know anything about. A situation like this calls for a little extra compassion on the part of the revenue officer. Most good revenue officers will temporarily suspend collection in this situation while requesting a reopening of the audit case. But taxpayers have not real legal recourse in this situation and are totally at the mercy of the IRS.

AUDIT-PROOFER'S STRATEGY RULE

If you are being asked to pay additional taxes from an audit assessment you know nothing about, and the revenue officer handling your case is demanding that you pay the tax, you have several options to follow: You can request that the audit be reopened; you can pay in part or in full while at the same time appealing the decision.

• You can request that the audit be reopened so that you can submit substantiating documentation or proof of the items that were disallowed. You can find out what was disallowed by asking the revenue officer to requisition a copy of the tax return and the audit report. Internal Revenue Manual Section 53(10)4 requires the revenue officer to refer your request to the Examination Division. Internal Revenue Manual Section 4023:(10) requires the Examination Division to reopen the case if: you contend you have never received any notification of the audit prior to receiving balance due notices or a collection contact; you have moved since you filed the tax return in question; and/or, you have never had the opportunity to submit the substantiation required.
• You can pay part of the tax and file Form 843, "Claim," for a refund of the portion you paid. While the IRS doesn't have to honor a partial tax payment claim, they will usually reopen a previously examined case in extenuating circumstances.
• You can pay the full amount of tax, and then follow the refund claim route as above. If the IRS denies your refund claim then you have the option of taking it to the Claims Court or a U.S. District Court.

Next Section: Audit Misconception #4

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