On Monday, I returned home from work to find a letter from the IRS in our mailbox. My heart sank. Fearing the worst, I opened the envelope and peered inside. What I saw wasn’t nearly as scary as I had feared. Yes, we’re technically being audited, but it’s just a “correspondence audit.” Moreover, it’s the byproduct of an IRS error, and we have the documentation to prove it.
What is a correspondence audit?
Before we go any further, I thought I’d define exactly what it is that we’re talking about… A correspondence audit is simply a letter from the IRS notifying you of a possible error on your return. The letter will contain details of the error, as well as information on how to make things right. They might ask for additional documentation, or they might simply recalculate your taxes for you.
In most cases, the IRS initiated contact because they think that you owe them additional taxes and/or penalties. That’s not always the case, though, as they once notified me that I had made an error in their favor and thus owed less than I though. Regardless, you have the right to contest their decision.
What triggered our audit
According to IRS records, we never made our final estimated tax payment for 2008. As such, they sent us a “CP 23 ” notice for underpayment of estimated taxes. This notice included a breakdown of the payments they had recorded on our behalf as well as a recalculation of our taxes — and a fairly hefty penalty.
The problem with all of this is the we did make this payment. In fact, if you’ve been reading along for the past few months, you might remember that I had a bit of a panic last January when I dropped the check in the mail a day late.
Note that the IRS notice wasn’t complaining about our payment being postmarked a day late. Rather, they have no record of our payment whatsoever. Once I realized what was going on, I hopped online and verified that the check had cleared within a week of me having mailed it. That’s the good news. The bad news is that the
ball was now in our court, and I needed to contact them to get this all straightened out.
Straightening things out
While I generally prefer to handle important issues such as this in writing, the IRS instructions said that I should call if I disagreed with their assessment. And so I did…
After spending 30 minutes on hold on Monday night, I hung up and decided to try on Tuesday morning. Unfortunately, the IRS was “experiencing high call volume” when I called back, and I was thus advised to try again later.
When I finally got through, I got transferred around a bit as they tried to locate our payment. In the end, they couldn’t, so they asked me to fax them a front/back copy of the check along with a brief explanation and a copy of our “CP 23 ” notice.
Tips for dealing with the IRS
The biggest thing that I’ve learned from this experience is that you shouldn’t take IRS correspondence at face value. It seems that they’re just as prone to mistakes as everyone else, so don’t assume that you’re in the wrong. Be sure to investigate everything for yourself.
Another big lesson is the importance of keeping good records. I was able to get things sorted out on my end in a matter of minutes because I had a record of exactly when we sent our payments. I was also able to hop online and immediately pull up a scan of the mystery check from our online banking interface.
Beyond the above, be sure to take detailed notes when you’re on the phone with the IRS. This should include the name and ID number of the phone rep, the date and time of the call, and a synopsis of the discussion. If you’re unsure of anything, don’t be afraid to ask for clarification.
Finally, your best bet when dealing with the IRS is to go out of your way to avoid trouble in the first place. One change that I anticipate going forward is that I’ll probably start using the Electronic Federal Tax Payment System (EFTPS). as there’s a much lower likelihood of an electronic payment getting mis-applied.