If the IRS is going to audit your client, it will most likely conduct a mail audit. In 2011, the IRS conducted 1.2 million mail audits, representing a 124 percent increase from ten years ago. In fact, the IRS conducts more than three out of four audits by mail.
The IRS recently introduced a special access line for tax practitioners to help their clients respond to mail audits. In doing so, the IRS is hoping to streamline some of the processing difficulties that mail audits have presented in the past.
Most mail audit problems are caused by IRS processing deficiencies, including:
- Lost mail
- Slow processing of responses
- Lack of specific IRS staff assignment to taxpayer audits
The most significant negative result of IRS processing delays for practitioners and their clients is receiving a premature statutory notice of deficiency, or ninety-day letter. Technically, a ninety-day letter allows protest of the assessment only in US Tax Court. At this point, the practitioner is left in bind: Try to get the IRS to correct the processing error or file a petition in Tax Court to protect the client's interest. Filing a petition is often expensive and time-consuming and requires an attorney. Most of the time, practitioners avoid Tax Court and hope that the IRS processes their response.
The IRS solution: correspondence audit hotline
To address processing issues, the IRS is offering a hotline through its nationwide Practitioner Priority Service (PPS) line at (866) 860-4259. On April 4, the IRS created Option 7, which directs practitioners to IRS mail audit campuses.
Mail audit campuses are separated based on the type of taxpayer:
- Small business/self employed (SB/SE) is for taxpayers with schedules C, E, and F, and Form 2106.
- Wage and Investment (W&I) is for taxpayers with Form W-2 and investment income who may have itemized deductions.
If you're confused about the appropriate IRS unit for your client, look for the number at the top of the letter. If the phone number is (866) 897-0161, your client is in an SB/SE mail audit. If the phone number is (866) 897-0177, your client is in a W&I mail audit.
General PPS hours, including the SB/SE line, are from 7:00 a.m. to 700 p.m. your local time. W&I line hours are from 8:00 a.m. to 8:00 p.m. your local time.
The IRS representative on the line will accept a new Form 2848 for your client by fax so that the representative can speak with you immediately. The representative will not make a determination on your client's case but will provide processing instructions. If you need additional time, the representative can grant up to fourteen additional days without cause and up to thirty days with a valid reason (for example, when you are awaiting documentation to prove a deduction).
Tips for using the hotline
- Call early. Volume increases during the day. The IRS also informally suggests calling from Tuesday to Thursday, because calls increase before and after the weekend.
- Call only about mail audits resulting from Letters 566, 525, or 692, or related mail audit statutory notices of deficiency (90-day letters). This hotline doesn't address underreporter inquiries (CP2000 notices). In that case, call the PPS number and select Option 6 for the Automated Underreporter unit.
- The IRS will not speak to you unless you have authorization. Have Form 2848 ready to fax, if needed. The IRS will accept a correct Form 2848 and speak to you immediately.
- You should have all of your client's information available to meet the representative's disclosure screening. The IRS will request your client's name, address and Social Security Number (SSN), and may request your client's date of birth and filing status.
- Document the call. Get the IRS representative's name and badge number. Document what occurred and what the representative agreed to during the call. Remember to follow up on deadlines.
Don't expect a determination on your client's audit using this hotline. When you fax or mail in your documents, you'll be sending them to a separate processing facility. A representative at that facility will make a determination on your client's case.
- If you have more than ten documents to provide, send them by mail. If you fax volumes of documents to the IRS, they'll get mixed in with other items the IRS receives by fax.
- If your client's deadline is approaching, call the IRS to request an extension of time to allow for processing of documents you mail and avoid a premature next-level notice.
- If you mail documents, add page numbers ("page __ of __") and your client's name and SSN to each page. This allows the IRS to assemble all of your client's documents.
- If your client's records are extensive or you need the IRS to consider the facts and circumstances, requesting a face-to-face audit may be preferable. However, to request a face-to-face audit, the IRS requires that you attempt to work with the examiner by mail. If you can show "cause," which often means extensive or complex documentation, you can ask for the case to be transferred to the local IRS office or field audit group.
Some processes don't change
In mail audits, no one IRS representative is assigned to your client's case. Clearly and completely communicating and documenting your client's position in one submission is essential to eliminating confusion and streamlining the process. The examiner who reviews the documentation will rely on the notes from the previous examiner. Therefore, your response should be thorough and complete and alleviate the need for a follow-up response.
Source: Beyond 415