A Guide to IRS Audit Reconsideration: Disputing Audit Results

The IRS audit process can be a stressful experience for taxpayers, especially if you disagree with the audit’s outcome. Fortunately, an option called “IRS audit reconsideration” allows you to request a review of your audit results after the IRS has issued an assessment and the tax remains unpaid. This process enables taxpayers to provide new information or correct errors that may have affected their original audit outcome. Let’s dive into audit reconsideration, who qualifies, and how to file for it.

What is IRS Audit Reconsideration?

Audit reconsideration allows taxpayers to dispute the results of an IRS audit when they believe the findings were incorrect or have additional information that could change the outcome. This process doesn’t reopen the original audit but reassesses the tax owed based on new evidence or corrections submitted. It’s essentially a second chance to have the IRS review your case based on previously unconsidered and/or unavailable substantiation or documentation.

When Should You Request an Audit Reconsideration?

While IRS audit reconsideration is helpful, it only applies in certain situations. Here are common reasons to request one:

• You did not appear for the original audit.
• You moved and did not receive IRS correspondence.
• You disagree with the audit findings and have additional documentation that could support your case.
• There were calculation errors in the audit report.
• The IRS made an assessment based on a substitute return it prepared for you (a “substitute for return” occurs when the IRS files a return on your behalf due to lack of filing), and you now file your return, resulting in lower tax.

Here are two common situations where taxpayers can take advantage of audit reconsideration.

1. The IRS selected Tim’s Form 1040 for a correspondence examination. However, Tim did not respond to the exam letter, which resulted in the IRS assessing tax, interest, and penalties. He has documentation for the deductions that were disallowed. Tim should request reconsideration so the IRS can review this information, which will reverse the assessment.
2. Daisy failed to file tax returns for two years. The IRS prepared her tax returns but did not use the correct filing status or account for all allowable credits. Daisy can correct these errors by filing her returns.

However, certain situations do not qualify for audit reconsideration. For example, audit reconsideration isn’t an option if you’ve already agreed to the tax assessment by signing an agreement or if the U.S. Tax Court or another court has already decided on your case.

How to File an Audit Reconsideration Request

To request IRS audit reconsideration, you’ll need to take the following steps:

1. Gather Supporting Documentation: Compile any new or previously unsubmitted documents that support your position. This could include receipts, canceled checks, bank statements, or other records showing your situation.
2. Write a Formal Letter: Draft a letter to the IRS explaining why you believe the original audit results were incorrect. Be specific about the items or issues you’re disputing and reference the new evidence you provide.
3. Complete IRS Form 12661 (Disputed Issue Verification): This optional form helps clarify which items or issues you are disputing. Although not required, it can make it easier for the IRS to understand your points of contention.
4. Submit Your Request: Mail your letter, Form 12661 (if used), and all supporting documents to the IRS office that initially handled your audit or call the IRS to obtain the correct mailing address. Ensure that you keep copies of everything you send, and consider using certified mail to confirm the IRS receives your request.

What to Expect After You Submit Your Request

After submitting your audit reconsideration request, it may take several months for the IRS to review it, depending on the complexity of your case and the volume of requests at that time. During this period:

• The IRS will acknowledge receipt of your request.
• An IRS agent will review the new information and may contact you for additional details or clarification.
• If the reconsideration results in a favorable decision, the IRS will reduce your tax assessment accordingly.
• If the IRS disagrees with your reconsideration request, it will send you a notice explaining why.

Tips for a Successful Audit Reconsideration

1. Be Organized: Present a well-organized and thorough case with all relevant documentation. Organizing your documents by issue or category can help the IRS understand your position better.
2. Respond to Requests Promptly: If the IRS requests additional information or clarification, respond as quickly as possible. Timely responses can help expedite the process.
3. Consider Professional Help: Audit reconsideration can be complicated, and getting assistance from a tax professional, such as a CPA, may increase your chances of success. They can guide you on what documentation to provide and represent you in communications with the IRS.

What if the Reconsideration Request is Denied?

If your IRS audit reconsideration request is denied and you still disagree with the assessment, you have additional options. You may request an Appeals Conference or pay the total amount due in full and file a refund claim. Sometimes, an offer in compromise or payment arrangement can help if you’re facing a substantial tax burden.

Final Thoughts

IRS audit reconsideration is a valuable option for taxpayers who feel they have been improperly assessed because of mistakes or incomplete information in their initial audit. Understanding the process, providing well-documented evidence, and possibly consulting a tax professional can increase your chances of successfully altering the audit outcome. While it’s not a guaranteed solution, audit reconsideration provides a valuable second chance to present your case and achieve a fair resolution. If you require professional help with your audit reconsideration or other tax relief options, call our Boca Raton office today at 561-826-9303.