Want to know how to streamline this process and make sure that the IRS considers your response without having to deal with the courts?
Respond timely: a complete, timely response that addresses all issues and questioned items is the starting point. If you respond timely, you have the right to have your information considered before the SNOD.
Send your response certified to the IRS: this is your proof of a timely response. Evidence of timely mailing is usually required – so send it certified with tracking.
In the response, protect your appeal rights: CP2000s and mail audits follow IRS deficiency procedures – that is, the IRS must generally provide you the right to an appeal within the IRS Office of Appeals on any adverse determination. In your response, include the statement, “If you disagree, this response serves to request a hearing with the IRS Office of Appeals.” This will provide you the foundation for undoing the SNOD and avoiding the need to go to court to dispute the findings.
Don’t respond with a 1040X: if you respond to a CP2000 or mail audit with a Form 1040X, expect the IRS to issue a premature SNOD. Why? CP2000s and mail audits are handled by IRS compliance units- a 1040X is a tax return, handled by the people at the IRS who process tax returns (Accounts Management in this case). Many 1040X responders to CP2000s and mail audits receive premature SNODs because the IRS does not associate a tax return as a response to a compliance inquiry.
Contest penalties in a response: many CP2000s and mail audit come with 20% accuracy penalties. Many taxpayers never contest the penalty and often find themselves wanting to contest the penalty after it has been assessed. The time to question penalties is BEFORE the penalty is assessed (again, these are IRS deficiency procedures). You should state your facts, law, and position to argue the assessment of the penalty with the response. Arguing after the penalty has been assessed is essentially begging the IRS for CP2000 or audit reconsideration. Also, you forego your appeal rights within the IRS if you do not argue with a timely CP2000 or audit response.
If you get a premature SNOD, request reconsideration and/or contact the taxpayer advocate’s office: if you have responded timely and receive a premature proposed assessment, you can request the Taxpayer Advocate Service (“TAS”) to intervene. It is fairly common for taxpayers to request the TAS to intervene (it is #10 on the most common issues faced in TAS). TAS can help reverse premature assessment and ensure that the taxpayer has access to IRS appeals if they are timely requested. If you did not respond timely, you can also request “reconsideration” of the CP2000 or mail audit SNOD (or even after the tax is assessed). Reconsideration is common for CP2000s and for mail audits as the IRS often does not hear back from taxpayers on time or process adjustments without getting all of the facts from the taxpayer.
A response that addresses all of the issues along with these 6 things will help you avoid a lot of headaches and time with the IRS trying to “undo” an incorrect CP2000 or mail audit assessment.
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