The Audit Process:

Following the Audit

The audit is finally over and you lived through it! Not so fast. There is still a very important issue at hand to ponder, to agree or not to agree with the tax auditor's assessment of your situation. Although this does not happen very often, there is a small chance that the agent has determined that the IRS owes you money and a refund is in order. In that case, we suggest you sign the Form 870 that the assessor is going to present you with. In this situation, the Form 870 is considered a valid refund claim. In addition to signing this form, you should also file a protective refund claim. This will protect you in the event that the agent fails to process the refund or the refund inadvertently gets lost in the shuffle. To help avoid future audits, it is advisable to use an up-to-date online tax software program to help ensure accuracy of your tax returns.

In most cases, however, the audit will determine that you are deficient in your taxes and owe additional taxes, interest and possibly penalties. If you believe you have done better than you expected to do regarding the amount you thought you would end up owing, you will probably choose to agree with the auditor's proposed changes. Once again, you will need to sign Form 870, but this time it has a different meaning then when you sign it in expectation of a refund. In this case, Form 870, otherwise known as the "Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment." Once you sign this form, an immediate assessment of a deficiency plus penalties and interest, if due, is permitted, and the limit to the amount of interest that can be added to the deficiency is set. Be careful! Once you sign this form, you are in effect giving up any and all rights you have to appeal the decision, to both the IRS Office of Appeals and the Tax Court. Therefore, do not sign this form unless you are absolutely positive that you agree with the audit findings. There are no second chances!

If you disagree with the agent and the examination takes place in an IRS office, you can ask for an immediate meeting with a supervisor. If the meeting takes place at your business or home, you will be receiving a 30-day letter, in which you are given the opportunity to request a conference. You will have to prepare a formal written protest detailing your reasons for disagreeing with the agents findings unless the audit was held in your office, by correspondence or the disputed amount does not exceed $25,000. Even if a written protest is not necessary, you will still have to provide a brief description stating your reasons for disputing the audit's findings.

Should you still disagree with the findings of the conference, you will receive a Notice of Deficiency (also called a 90-day letter) that informs you that the government plans to assess the additional tax owed at the end of the 90-day period. This also gives you 90 days to file a petition with the Tax Court if you plan to appeal. The Tax Court uses a small tax case procedure when dealing with cases where the amount in dispute is less than $50,000. Once a decision is made in a small claims case, that decision is final and cannot be appealed. Be advised, penalties can be imposed when you bring a case that is considered frivolous to the Tax Court. The IRS does not appreciate having their time wasted!