Audit reconsiderations are a method to settle Internal Revenue Service or New York State taxes owed if the taxpayer meets certain requirements. If a taxpayer is audited but does not respond to the notice, whether by mistake, neglect, or if they did not receive the letter to a proper address of record, they forfeit their legal right to appeal the audit, but can still ask for an audit reconsideration.
A tax audit is a review of the accounts and financial information of a taxpayer or their business, and can occur at random or if there are discrepancies from what was reported. Tax audits are done to ensure that the information reported by the taxpayer or business is being reported accurately and according to the tax code, and to ensure that the correct amount of tax is paid. Audits can be finalized and tax liabilities, penalties and interest assessed even if a taxpayer does not respond to an audit request. This can happen if the taxpayer misses the deadline. Sometimes a taxpayer is not even aware that there is an audit occurring because the IRS mails the audit request to the last known legal address of the taxpayer on file but because the a taxpayer moved without informing the IRS of their new address, they have a chance of missing the request. Not receiving or responding to an audit request makes the audit process more complex.
Fortunately, even if a taxpayer did not respond to an audit request and a tax assessment is made, there are still options to settle the tax debt. The best tax settlement method for this scenario is an audit reconsideration. An audit reconsideration is a procedure that helps taxpayers who disagree with an assessment the IRS or New York State made due to an audit of a tax return and can also be used if a taxpayer disagrees with the audit for a tax return if the IRS prepared a substitute return on behalf of a taxpayer who did not file. The tax law allows the IRS power to abate tax, interest and penalty assessments if they are found to be excessive, or incorrect.
An audit reconsideration can happen for many reasons including:
- The taxpayer did not appear for the audit
- The taxpayer moved and did not receive any correspondence from the IRS or New York State and tax was assessed
- The taxpayer submitted documents that were not considered
- The taxpayer has new documents to present
A taxpayer can request an audit reconsideration themselves, but this is not recommended. Since the primary basis for asking for an audit reconsideration is new evidence, and a tax attorney would be the best person to organize such information in a proper format. Audit reconsideration cases have complexities; especially since the rules regarding reconsiderations are informal. Taxpayers are not as knowledgeable in the tax law as an experienced tax attorney, who will know how to respond to every situation.
When a taxpayer decides that an audit reconsideration is their best course of action, they will need to prepare documents to send to the IRS. The documentation should typically include:
- Statement on the issues the taxpayer believes are incorrect
- Information to support the taxpayers assertion
- Copies of documents previously sent to the IRS or New York State
- Copies of documents the IRS or New York State sent the taxpayer
Once the IRS or New York State receives a request for audit reconsideration, they typically suspend collection actions against the applicant. After the agency reviews the documentation provided by the taxpayer, they will decide if the assessed tax should be changed. If the taxpayer does not agree with the IRS’s assessment, the taxpayer can ask the IRS to reopen the audit, or protest by the Appeals process. If the taxpayer agrees with the IRS’s assessment, they will still need to settle any back taxes owed. At this point, the taxpayer can turn to their attorney who understands tax laws to negotiate for an offer in compromise or installment agreement.