After you file your return, the IRS will review the accuracy of your computations and ensure you have included all of your income. The information from your return will be compared against the Forms W-2 and 1099 the IRS receives from your employers and anyone else who has reported payments to you.
If a discrepancy or error is found, you will receive a notice in the mail advising you of the corrections and any additional tax due. You may also be asked to substantiate tax credits or deductions by submitting additional information. You can voluntarily submit additional information or request an interview if you disagree with the IRS assessment of additional tax.
You will be notified by mail if your return is selected for a more thorough examination, which may occur a year or two after you submit your return. This examination can be conducted by mail or in person at your home, place of business, or accountant's office (field audit). You can request a change of time, location, or method of examination if the scheduled interview is inconvenient. You also have the right to make an audio recording of the interview, provided you give written notice to the IRS agent at least 10 days before it takes place.
At the bottom of Form 1040 you can designate a third party to discuss your return with the IRS. This person does not need to be a tax professional and can be a friend or relative. The designee's communication with the IRS may address processing issues such as mathematical errors, missing information, or refund and payment questions. However, you will need to sign a power of attorney on Form 2848 to have a designee discuss underreported income, IRS appeals, and collections notices.
Most Notices Will Contain the Following Sections:
Summary Section (or Header Section) – this section of the notice provides a brief summary of the notice and instructions on what to do to determine if you agree or disagree with the proposed changes.
Explanation Section (or Body Section) – this section of the notice may show the information reported to the IRS that differs from the information reported on your return. In this section, information will be shown that will enable you to compare the income documents you have received with information reported to the IRS. This section should also provide the reason(s) the adjustments are being made to your return.
Response Section – this section explains how to indicate to the IRS whether you agree or disagree with the proposed changes. This page (or a copy of this page) should be attached to any response sent to the IRS.
Tips for Responding to IRS Notices:
Each notice sent out by the IRS contains a "CP" number, which is located in the upper right-hand corner of the first page. The "CP" number will also be found on the last page of the notice if it contains a tear-off stub to return with any payment or reply
There may be a phone number in the same area to call for assistance (if you do call, be sure to have a copy of the notice and a copy of your return to reference)
DO NOT file an amended return unless specifically instructed to do so
Respond within 30 days of the date of the notice (60 days if you live outside the United States)
If you have lost the envelope that came with the notice, send your response to the address listed in the upper left-hand corner of page 1. Enclose a copy of the notice with the response
Verify the Tax Year in the upper right-hand corner of page 1, as it may be for the most current tax year filed, but may also be for prior tax years
Review the Explanation Section, if applicable to your notice, to get an idea of what items are being adjusted