Audit Reconsideration

An audit reconsideration results from a taxpayer ignoring or missing an audit. During an audit, there are appeal periods [even if not attended on the appointment date]. First, a letter appears in the mail showing horrendous liability from all audit items being taxed by default. There is a chance to appeal to the IRS audit branch supervisor within a month from the date of the letter. Afterward, there is an opportunity to appeal to the tax court which must begin within 90 days of the last letter. You will be notified of the timelines. Meanwhile, you returned from the trip around the world and discovered you missed the audit. What then?

There is a back-door opportunity to get back to an audit and start over. You can file for an audit reconsideration and provide all of the missing auditable documents with the appeal. The copies must be in perfect order [one client mailed a huge pillow-sized envelope of receipts with her AR and it came back in the mail two weeks later unopened. The burden is in your corner and they are giving you a second chance. Sometimes, if for a Schedule C business, the AR will be referred to a local office and an appointment made. That is the best option because you meet a real auditor face to face.

Accordingly, they will either, review the materials you mailed and send you their results, or they will refer the thing to a local IRS office, which is probably where the audit originated in the first place. This is a lot easier than going to the local Congressman’s office demanding a re-audit [which I did once] after you find there are no appeals avenues left open because the 90 Day Letter has been timed out.

Usually, a missed audit results in all audited items being allowed which can have terrible tax consequences, the same as not filing a tax return. If you had the sale of a property for a million dollars and missed the audit, for any reason, they will tax the whole million because they don’t know how much your cost or basis was.

An AR is not required for a tax return not filed. Simply file the old tax return and settle the differences.

There is no official form for an AR, just a written sighed request. All documents submitted must be copies of originals and must be summarized in a cover letter or worksheet. Items must reference the audit items listed on the original audit. Original powers of Attorney must be included. Then wait a few months because they are very slow about responding to things received by mail.

Meanwhile, the clock is ticking and your account is being turned over to collections and tax liens will be filed. You need to act now if this is your situation before your bank account or paychecks go away. To do one of these we need a 2848 Power of Attorney form, an anxious serious taxpayer to see it through, and some invested time in gathering the required original documents and summary sheets. There are also many other methods to hold the collection people at bay until an earnest communication settles the matter.

* Phillip B Chute is an Enrolled Agent, tested, licensed, and appointed by the IRS directly. He has prepared or supervised over 25,000 tax returns over 30 years.