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  • Writer's pictureMMH CPA

What is a Correspondence Audit?

In-person audits with an IRS agent are becoming less common. The IRS is instead handling many routine reviews through form letters called correspondence audits.

These IRS letters are a kind of “audit lite” the agency uses to ask for clarification and justification of specific deductions on your tax return. Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education savings plans, excess miscellaneous deductions, and small business expenses.

Stay calm

Don’t panic if you get one of these “audit lite” form letters. The IRS often uses computer programs to compare individual return deductions with the averages for a person’s income level or profession. If you’ve received a letter, you may have simply fallen outside the averages. As long as you respond promptly, thoroughly and with good documentation, it won’t necessarily become a contentious issue.

The key is to keep proper, well-organized documentation under the assumption you may need it to support your deductions. If you do this right, the correspondence audit will end with a “no change” letter from the IRS, acknowledging you’ve addressed their concerns.

The downsides

While correspondent audits usually target only a few areas on your tax return, there may be additional complications with this kind of audit. Here are some things to consider:

It is an audit. Many taxpayers do not realize that this mail correspondence is an audit. When you get the “audit lite” letter, it’s important to ask for help. You need to address the audit promptly, but also professionally and accurately. How you respond is just as important as responding on time.

No personal touch. Unlike an in-person audit, you won’t have someone there who personally understands your situation. This can be frustrating if you’re told you’re not providing enough information, you're missing the correct information, or if you disagree with the agency’s findings.

Back-and-forth hassle. If you want to challenge the IRS’s findings, it often takes multiple back-and-forth letters. Try to be patient. As long as you can defend your position with the correct information, you have a good chance of coming out on top.

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