How realistic is this scenario? Unfortunately, it is very common. The IRS has entered the digital age. The much maligned computer system used by the agency is now being used to conduct a form of audit known as a correspondence audit. This occurs when the computers automatically compare the total earnings you reported in your tax return to the information returns provided by your employer, 1099s issued by clients, banks, stocks and so on. If the computers find you underreported, the computers will kick out a nasty letter telling you as much and demanding payment.
This computerized correspondence audit has become a major tool of the IRS. It is considered as much an audit as a face-to-face meeting and is primarily responsible for the reported increase in audits. The question you are probably wonder, of course, is what you should do if you receive one of these dear taxpayer letters.
The first thing to do with a correspondence audit is to read it. This may seem obviously, but a lot of people go into full panic mode only to finally read the letter and discover the IRS thinks it is owed an additional $25. These correspondence notices are sent out for debts as small as $1 and as high aswell, as high as you can go. The mere fact youve received a notice is not the end of the world.
Okay, what if the notice says you owe $2,500 in additional taxes. Well, you have two real choices. The first is to fight it. You can do so by providing documentation proving you paid the right amount of tax. You can also request a meeting although it is strongly suggested you have a CPA or tax attorney go unless you really know what you are doing. Your second choice, of course, is to simply pay in the amount indicated.
A letter in the mail from the IRS used to be the sign of impending doom. These days, it may be but then again it may not. Dont stress too much until you actually read the letter and see what has piqued the interest of the agency.
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